Andy Jakubowski Pillen Family Farms

https://eventmobi.com/bps2021/agenda/e0eb61d7-fffc-45d2-a179-e05934f976d0/53faa40a-9892-44bf-a3ff-02d690f214b1

Pillen Family Farms

71,000 sows

264,000 nursery pig spaces

12,000 to 15,000 all-in/all-out per nursery site

Hotel style nursery buildings, several rooms lining a hallway

700 to 1,800 pigs per room (which means per air space)

Negative pressure ventilation through the attic

The Problem

In 2017, we spend a lot of time and money getting the health of the pigs higher, becoming PRRS negative, so that we could co-mingle pigs and achieve all-in/all-out nursery pig flow. Through that process we had nurseries that did great and nurseries that were sub-par even with the equal health and starting age.

We built new nurseries, we wanted to get all the pigs onto plastic floors. We wanted to give the pigs the best environment and best chance for growth. We wanted to give team members the best change at raising the pigs and making sure our business was thriving with pigs going through the new nurseries.

Our biggest struggle was that we built brand-new nurseries and after looking at data, turns and closeouts, our mortality wasn’t where we needed it to be. We had older sites, curtain-sided ventilation, concrete floors and they were beating our brand-new nurseries in piglet growth (ADG) and death loss. We had to confront this: “What the heck is going on here?” We were struggling and couldn’t put our finger on what was going on with health and performance.

We asked ourselves, “How do we identify the root cause of the performance issues?” 

How Did We Try to Figure It Out

We decided to put video cameras in our nurseries to see if we could figure it out. In Fall 2017 we installed 150 Network Video Recorders (NVR) in 12 nursery locations. NVR cameras weren’t new to us. Previously, to ensure high health, we put cameras on multiple sow farms at critical control points to verify biosecurity protocols and help teams make sure they were executing correctly. We had confidence in installing the cameras (our IT team was accustomed to installing them), we knew how to do it, and they had been very helpful on our sow farms. 

We put minimum 10 mbps Internet connectivity at each nursery site. We put the NVR in each nursery office and ran CAT-5 cables to Power-Over-Ethernet (POE) switches in the hallways. We ran CAT-5 cables from the POE switch through the attic and to each room. POE switches give you multiple ethernet ports to provide power and network connections to the IP cameras. They expand the reach of an NVR system. We had to use POE switches because our nurseries are fairly long and you can’t go over 200 feet from the office NVR to each room. The POE switched allowed us to power-up the cameras even to the rooms furthest from the office. The key is to put the POE switches in a central location and run cables from there to each room. In some really long nurseries we had to put in 2 POE switches. We used POE switches that didn’t produce a lot of heat so we could put them inside a sealed box which protected them from power-washing. These POE switches are very reliable, we haven’t had to replace one in 3 years. 

Figuring out where to put the camera in each room was a little bit of trial and error. We tried pedestals, hanging them in corners, and moved them a couple of times to find the right angle. It all comes down to “what are you trying to see?” It’s not a big deal to install or move the cameras, only 3 screws per camera. In larger rooms, we put the camera in the middle, right above the door. The cameras can be adjusted [manually] to look lower or higher. In smaller rooms we put the cameras in the corner or the middle depending on obstructions. We sealed all the conduit running trom the cameras to the attic to keep moisture out. 

What Did We Learn?

The cameras revealed what we were doing to these pigs with ventilation and certain chores. We underestimated the effect of not having a set of eyes in the barn 24/7. 

What happened when we filled rooms? 

We were able to see pigs piling and obviously chilled even though the minimum ventilation settings were correct based on our SOP’s. But the pigs visually told us they were not comfortable. This was especially the case in the evenings and in rooms large enough that they weren’t completely filled on the same day. We learned that the key was the ability to quickly respond. We can remotely view and connect to our ventilation controllers, and change the settings remotely. We were able to turn off the second minimum ventilation fan or slow it down as much as possible and then see how we made the pigs more comfortable by looking at before-and-after videos. 

What happened when we vaccinated?

We spent a ton of time figuring out vaccinations. It was a huge eye-opener for us on what the pig told us in the hours and days after being vaccinated. They became extremely uncomfortable and started piling and huddling. It didn’t matter if we vaccinated right off the truck on arrival or two days after arrival. We learned we were doing the pig a disservice, really harming their ability to get to feed and water, harming their ability to ‘take off’ and start well. We tried increasing the room temperature after we saw the pig piling up, we went into the room and got them up, made sure they were finding the water, keeping them active but we couldn’t keep people there 24 hours a day so that wasn’t the solution. Turning up the heat seemed to make the pigs more comfortable but then we would run into humidity issues. 

In the end, we decided to move all the vaccinations to the sow farms. Of course, it was labor intense and the sow farm staff were not fans of the decision to vaccinate piglets late in lactation. But nursery mortality decreased significantly after we did this.

What did we see when we were gruel feeding?

With the struggles we had, we were trying everything we could so we started grueling the pigs on arrival using wet gruel pans. We were using long gruel pans to feed a lot of pigs at once. We also made sure they had ample fresh water, and tried to get them on feed as quickly as we could. We were trying different things, not knowing what was going on. Grueling would happen, team members would leave the room, and the pigs would start piling on the mats. We realized we were doing the pigs a disservice. The pigs were very active, the pan styles allowed the pigs to lay in them or get their hooves caught. They would run around, they were very active, and we ended up with the floors being soaked with water and all the pigs getting wet. It made us ask ourselves: Do we really need to gruel these pigs that much? It took multiple months to figure this out. In the end, we decided to use gruel pans only for fallback pens. We put all pens on dry feed, feeding on mats.

We found out we had drafts that were causing pigs to be chilled

The videos showed us situations where pigs in some pens were piling or laying differently but pigs across the alleyway in the same room were comfortable and not piling. We spent a lot of time trying to figure this out. We knew the ventilation settings were right, the minimum ventilation speed wasn’t set too high. What could we do to make sure the comfort level across all the pens was the same?

It was driving us crazy because the older nursery barns (the ones we were intent on replacing) were doing incredibly well. We had the same team members, the same pigs (same health, same genetics, same feed, same starting age and size). The old ones had so many air leaks with not as much air coming through the actual inlets, air coming in at the tops of the curtains yet the pigs were more comfortable. We discovered that our new barns were incredibly tight in contrast to the old barns. In the old barns, the incoming air was more dispersed and so more gentle on the pigs because of all the leaks. Our new hotel-style nurseries were well-sealed, the fan shrouds didn’t leak. The few air leaks we did have in the new barns meant that the air coming in through the leaks was coming in too fast and chilling the pigs. 

We discovered  that bi-fold air inlets leak through the fold’s crease. This one really stuck out as causing the pigs to lay differently in different pens because some of the air coming in was being directed right at the floor and the pigs. They were piling up and laying differently. It was very obvious on the videos especially on really cold nights. But it was a challenge to educate our team members. We tried fogging the barn but it didn’t tell us much. In the end, the pigs told us everything we needed to know. We fixed the problem by screwing bubble wrap onto the inlet folds to divert horizontally any leaking air rather than having it move directly down on the pigs. Overnight it improved the laying patterns. It was a pretty easy fix but it took us a while to figure out what to do. We also caulked around the inlets at the ceiling frame. 

We also discovered obstructions in front of the air inlets or heaters (like feedlines, water lines, and electrical conduit) that had been placed there inadvertently during construction. This was especially a factor when pigs were just started and the room was running on minimum ventilation. We had to either close an obstructed inlet or if we had to use it, we put a smooth surface underneath it to deflect the air. Not a lot of thought given by the construction crew, not a lot of focus when the barn was being built. This was also true for locating the temperature and humidity probes. We had to make sure they weren’t being drafted on by an inlet or hung at the wrong height. We realized we need to be a lot more involved very early in the building process.

We had to seal the sliding doors leading into each room. We had big gaps along the sides and at the bottom and tops. We saw problems with pigs being chilled, especially in the first 2 or 3 pens by the door. Air was being pulled underneath the doors to each room and in the hallways with exterior framing. We put garage door weather stripping on all sides of each door. 

Too much wind pushing too much air causing drafts

We were struggling on windy days to keep the pigs comfortable, this was a big one in our system because of being located mostly in Nebraska. It wasn’t just when the pigs were starting, it was all the way through the turn. On windy days with north-facing barns (and some west-facing, too), we saw big increases in the heater run times. Team members asked “How come the heaters are running all the time?” and said “these pigs aren’t looking right, what’s going on?” With smart ventilation controls you can see the data on heater run times and see what the pigs look like when the heater starts and runs. We combined this knowledge with what we were seeing on the videos. We found out that it was only some rooms that were being affected on windy days, it was mostly the end rooms.

We spent a lot of time figuring out the cause and the best fix. We discovered it was a problem with attic pressurization. Too much air moving too fast was coming in on windy days. There was more air being pushed in that the minimum ventilation fans could take out. We noticed that other fans in the room looked like they were running, even the louvers were open, because there was so much pressure and air was being pushed out through the fan openings. 

We tried shutting a bunch of inlets but then when the wind died down at night too many inlets were closed. So someone would have to go back out to the site to open them up again at night. Not a sustainable solution! We played around with shutters for pressure relief and, in the end, we put shutters in the attic end walls. On windy days you’ll see the louvers wide open and straight out. It hasn’t been a 100% solution but it’s greatly minimized the amount of air being pushed into the rooms on windy days. Videos showed the pigs more comfortable and the laying pattern greatly improved. 

You can’t just read a book and say this many cfm/pig should be right and then set it, forget it and assume everything will be OK. Wind speed, wind direction, and barn orientation are all factors. It’s not a cookie-cutter approach. You might have to ventilate 5% differently across the many barns but to do it, you need to find out what the pig is telling you. 

An ‘aha’ moment

An incidental observation when watching the videos led to a big ‘aha’ moment for us involving employees doing their morning chores. We saw that the pigs would get obviously less comfortable, chilled and piling right after the morning chores or after the last mat feeding. So, what was going on? This one took a little time to figure out but it ended up being a good study, we learned a lot and more importantly our team members learned a lot. They know we pound on humidity and they do a humidity check in the morning. Our SOP is if humidity is above 60%, then adjust the ventilation settings to increase the minimum ventilation. We could see via video the pigs were comfortable before they started chores but after they made changes to the ventilation, the pigs weren’t comfortable any more. And this would sometimes go on all night with less water consumption and less feeder activity. So we put in humidity sensors that took readings every 1 minute. The ‘a ha’ was that when chores were going on, the pigs became very active, running around the pens, and naturally the humidity went up. We discovered we were doing a disservice to the pigs by increasing the minimum ventilation just then. Now, a decision to change the minimum ventilation has to involve two people. And we want team members to wait before making any change and see what the pigs look like 30 minutes later without making a change. We make sure the pigs are comfortable before leaving for the day. If we see a problem on the video, we can use the remote connectivity to our ventilation controllers to make an adjustment. 

In the end, this turned out to be a good lesson on the cause and effect of making ventilation changes. Especially for team members, when they make a change what is the effect?

Really understanding humidity was a big one for us to figure out what was going on at the time of doing chores. 

Other Uses for the Video Cameras in Nurseries

We put cameras at critical control points especially for biosecurity monitoring. We did this on our sow farms. It has been very helpful and effective for making sure the SOP’s and protocols are being followed correctly. Also for coaching and training team members. We put cameras in the Danish bench area where people enter the farm; in the drying and disinfectant room where supplies enter the farm; in the pass-through window where people bring things like their lunches to make sure they follow the double-bag system; and, on the load-ins/load-outs to verify biosecurity, watch for any piglet stress, and verify sanitation protocols (were chutes washed after loading?).

We also use the videos from the nursery rooms to verify internal biosecurity processes: power washing, detergent and disinfectant protocols; making sure we have hot water; making sure the rooms are completely cleaned. We can zoom the video to look into corners or at feeders, etc. It’s been a good coaching tool and has really helped the starting of pigs. By doing this, we’ve seen a drop of 0.5% in nursery mortality levels.

On-Going

We continue to use the cameras today to make sure the nurseries continue to perform at high levels. 

Q & A session

How much time does it take to look at the videos? Do you use any artificial intelligence to evaluate the videos?

The amount of time depends on the site manager and what’s going on. We focus on the first 10 days after placement, what are we doing to get that pig started well. We pay close attention to the pattern of how the pigs are laying and if they are piling. We spend more time with new team members, using the videos for coaching. No automated analysis, we just review the videos manually.

What’s the cost and the ROI? 

$700-$800 per camera, complete installed cost. We saved some cost by having our own IT team do the installation. The ROI comes from performance improvements, reducing overall nursery mortality by 2% to 2.5% with increases in ADG at the same time. We have learned so much from many areas, lots of little things in managing ventilation, drafts, and so on. Also in coaching and training our team members. 

How rugged are the cameras, how much maintenance?

The cameras are rated IP67, made to be used outdoors, in the rain, etc. We have no problems power-washing right over them including the lenses. You need to wipe down the lenses after cleaning between turns. Basically maintenance free. 

Are you using the cameras for counting pigs, inventory? No.

Can you verify individual pig treatment? 

Not individual pigs. We make sure chores get done. We know how long people have been in the rooms, how long they are doing chores and did they walk the pens correctly.

What’s been the reaction from the staff?

The purpose is important. They were nervous at first but they learned that we want to focus on the pig and provide coaching, feedback, and training. Now people forget about them. The big thing is that everybody wants to know “what was going on in the room when we weren’t there?”

What about infrared cameras?

We looked into it but we’re not interested at this time. It’s a lot of infrastructure and tough to deal with the volume of data. 

Are the new buildings now performing better than the old ones?

Yes, now they are better and the plastic floors are better than the concrete ones.

The most surprising thing you learned? 

It’s been eye-opening in understanding these barns and how big of an impact ventilation has on the pigs. Especially if the decision to change ventilation wasn’t right. Understanding cause-and-effect and activity patterns v. what is going on. It’s had a huge impact on feedback and coaching, being able to close the loop on what happens when you make change and the effect. We completely underestimated the effect of letting team members change the ventilation. 

The Guardian · by Damian Carrington · December 2, 2020

Cultured meat, produced in bioreactors without the slaughter of an animal, has been approved for sale by a regulatory authority for the first time. The development has been hailed as a landmark moment across the meat industry.

The “chicken bites”, produced by the US company Eat Just, have passed a safety review by the Singapore Food Agency and the approval could open the door to a future when all meat is produced without the killing of livestock, the company said.

Dozens of firms are developing cultivated chicken, beef and pork, with a view to slashing the impact of industrial livestock production on the climate and nature crises, as well as providing cleaner, drug-free and cruelty-free meat. Currently, about 130 million chickens are slaughtered every day for meat, and 4 million pigs. Of all the mammals on Earth, 60% are livestock, 36% are humans and only 4% are wild.Revealed: UK supermarket and fast food chicken linked to deforestation in BrazilRead more

The cells for Eat Just’s product are grown in a 1,200-litre bioreactor and then combined with plant-based ingredients. Initial availability would be limited, the company said, and the bites would be sold in a restaurant in Singapore. The product would be significantly more expensive than conventional chicken until production was scaled up, but Eat Just said it would ultimately be cheaper.

The cells used to start the process came from a cell bank and did not require the slaughter of a chicken because cells can be taken from biopsies of live animals. The nutrients supplied to the growing cells were all from plants.

The growth medium for the Singapore production line includes foetal bovine serum, which is extracted from foetal blood, but this is largely removed before consumption. A plant-based serum would be used in the next production line, the company said, but was not available when the Singapore approval process began two years ago.

A series of scientific studies have shown that people in rich nations eat more meat than is healthy for them or the planet. Research shows cutting meat consumption is vital in tackling the climate crisis and some scientists say this is the best single environmental action a person can take.

The companies developing lab-grown meat believe this is the product most likely to wean committed meat-eaters off traditional sources. Vegan diets are viewed as unappealing by some, and plant-based meat replacements are not always regarded as replicating the texture and flavour of conventional meat. Meat cultivated in bioreactors also avoids the issues of bacterial contamination from animal waste and the overuse of antibiotics and hormones in animals.

The small scale of current cultured meat production requires a relatively high use of energy and therefore carbon emissions. But once scaled up its manufacturers say it will produce much lower emissions and use far less water and land than conventional meat.

Josh Tetrick, of Eat Just, said: “I think the approval is one of the most significant milestones in the food industry in the last handful of decades. It’s an open door and it’s up to us and other companies to take that opportunity. My hope is this leads to a world in the next handful of years where the majority of meat doesn’t require killing a single animal or tearing down a single tree.”

But he said major challenges remained, with the reaction of consumers to cultured meat perhaps being the most significant: “Is it different? For sure. Our hope is through transparent communication with consumers, what this is and how it compares to conventional meat, we’re able to win. But it’s not a guarantee.” He said the cultured chicken was nutritionally the same as conventional meat.

Other challenges included getting regulatory approval in other nations and increasing production. “If we want to serve the entire country of Singapore, and eventually bring it to elsewhere in the world, we need to move to 10,000-litre or 50,000-litre-plus bioreactors,” Tetrick said.

Eat Just already has experience in selling non-animal products, such as its plant-based egg and vegan mayonnaise, to consumers. Another company, Supermeat.com in Israel, has just begun free public tastings involving a “crispy cultured chicken”.

Industry experts said other companies, including Memphis Meats, Mosa Meat and Aleph Farms, might do well in future as they were working on textured products such as steaks and were able to produce significant amounts of lab-grown meat from the start. Tyson and Cargill, two of the world’s biggest conventional meat companies, now have a stake in Memphis Meats.World’s first lab-grown steak revealed – but the taste needs workRead more

A recent report form the global consultancy AT Kearney predicted that most meat in 2040 would not come from dead animals. The firm’s Carsten Gerhardt said: “Approval in an innovation hotspot like Singapore already in 2020 could fast-forward market entry in other developed nations. In the long run we are convinced that cultured meat will address the health and environmental impact issues that traditional meat has when produced in a highly industrialised way.”

Gerhardt said he expected cultured meat would replace cuts of traditional meat, but that plant-based products, which were less expensive, were more likely to replace burgers and sausages.

“The [Eat Just approval] is a very big deal for the future of meat production globally,” said Bruce Friedrich, at the non-profit Good Food Institute in the US. “A new space race for the future of food is under way.” He said cultivated meat was unlikely to become mainstream for some years, until it matched the cost of conventional meat.The new food: meet the startups racing to reinvent the mealRead more

Hsin Huang, the secretary general of the International Meat Secretariat, which represents the global meat and livestock industry, agreed the cultured meat approval was a significant moment.

“It seems certain that similar products from other companies will follow,” he said. “There has been so much hype on cell-cultured meat that the anticipated first steps to mass sales is a significant moment.”

“We believe the market potential for cultured meat is vast, as consumers in general continue to show great enthusiasm for the taste and nutritional benefits of animal products. Of course, our view is that real animal products will better meet these needs, but healthy competition is welcome.”

He added that livestock are currently essential to the livelihoods of an estimated one billion poor people globally. He said the IMS believed strongly in consumer choice, with appropriate labelling and regulation.

The Guardian · by Damian Carrington · December 2, 2020

NCREIF = National Council of Real Estate Investment Fiduciaries. This quarterly update was presented by Anatole Pevnev, Managing Director US Agriculture; Bruce Sherrick, PhD TIAA Center for Farmland Research, Univ of Illinois; and, Steve Bruere, President, Peoples Company.

US Agriculture is a privately held investment adviser focused on institutional investment for agriculture. https://us-agriculture.com/

The TIAA Center for Farmland Research conducts research, develops data sources related to farmland, hosts academic symposiums, and works to inform policy on issues related to farmland prices and the financial aspects of farm management. https://farmland.illinois.edu/

Peoples Company one of the nation’s leading providers of land brokerage, land management, land appraisal, and land investment services. https://peoplescompany.com/

Farmland Index 2020 Q3 1194 investment grade properties, $12.4B total value
current 8 investment managers Farmland Opportunity, Gladstone Land, Hancock Agricultural Investment Group, Prudential Agricultural Investments, UBS Farmland Investors, US Agriculture, and Westchester. Going forward, there will now be 10 contributors to the index. New contributors are Acretrader and Fall Line Capital.

US Ag 32 States aggregate index “keep track very carefully in our center” USDA production data weighted by quantity of production in a State = “what a well-diversified portfolio would look like” 8.4% annual return “a lot of folks kind of surprised by that
2009-2019 puts farmland in a “reasonably favorable context” and equities not so much but the reality is that farmland has been an “incredibly positive performing asset with less risk” Equity REITS were strong but this doesn’t reflect the impact of Covid
AAA Bonds nowhere near those yields
farmland performs “quite a bit better than gold as an inflation hedge on an annual basis over long holding periods”
minimum and maximum put a relative context in place as to how variable the retuns are over time
gold with “a pretty wide variation over time comparied with farmland”
correlation with inflation is a topic getting an awful lot of attention these days, questions coming out of the pandemic, what’s going to be the effect of stimulus money, historically has had a strong correlation with inflation so that question is starting to get interesting to investors especially with the recent Fed statements re: targeting a higher inflation rate
slide: farmland returns minus inflation
since 2000 a very different crop insurance program that’s created additional stability at least on the income side for many of the major crops
where does the risk in agriculture really reside? the cost of capital declines means future income is worth more
if future income is stable, people will pay more for that, farmland is operating…, markets behaving as they should,
big questions 1. will anything change materially due to Biden election? Probably not but strength of the farm presence in DC is slowly waning a bit 2. Does the source of farm income matter in asset valuation?, ie. crop sales v. govt support payments Maybe not 3. Farm Bill Ag increasingly part of climate and carbon conversations, will there be a more direct policy influence from the new admin? “critical to get right” 4. inflation returns? if so, will we be able to maintain the historic performance in ag as a “fairly positive hedge against inflation?”5. Demand for ethanol, other commodities? e.g. less driving, eating at home v restaurants. “in some sense, shaping up to be positive for ag” bc positive inflationary pressures for home consumption but not clear in total and not clear how the world demand for calories multiplied up through the need to feed livestock first, will return to the path we thought we were on before the pandemic 6. Recent transactions seem to indicate new strength emerging, the questions about whether or not “the financialization of ag” will continue bc “it’s a really good portfolio asset” “a lot of people should own farmland” so beginning to see these new sources of demand for ag assets

Steve what about the info coming from actual transactions, a real-time pulse of what’s happening
4th Q very active, 70% of the business betw Sept and March
The farmland market very strong right now, lot of factors driving that:
1. cap rate compression (Background: Occasionally, the market will increase property values even though there has been no change to a property’s Net Operating Income (NOI). By raising a property’s value, this effectively lowers its Cap Rates, and this is called Cap Rate compression, and Cap Rate Compression typically is indicative of rising market prices and the fact that investors perceived certain asset classes as low risk, high reward properties. While some investors mistakenly assume that lower Cap Rates automatically means lower risk, this is not always the case. In fact, the opposite may be true if the Cap Rate is lower because of increased property values.) (go deeper on understanding cap rate compression)
2. lower interest rates
3. farm program payments “that’s huge” “farmers seeing some really nice payments around the country right now”
4. higher commodity prices along with some of the weather events we’ve seen this year
5. strong farmer interest, strong farmer buying
traditionally, farmers buying about 70% of all transactions, we were seeing some slippage and concerned about lower cap rates where the investor has higher return expectations that farmers but now with more cash on their balance sheets they are being a lot more aggressive at bidding at farmland auctions, bullish for land market will add to 4Q returns
new market participants e.g. Acretrader bringing more retail capital into the farmland space
a lot of new interest in farmland that came out of Covid
“all in all, things are very vibrant right now”

Q&A
what changes are farmers expecting in year 1 Biden admin?
carbon tax credits into the Farm Bill
China and trade issues
Biofuels
these are the 3 big issues that farmers paying most attention to
fuel and energy things adjacent to environmental and climate issues
no major changes in the major titles, the commodity title and the crop insurance title appear to be “incredibily safe”
positive soil health behavior will be codified
carbon credits will get capitalized into farmland values
contracts with farmers to get their carbon credits
bullish for farmland values
appraisal industry having a hard time recognizing the investments farmers are making in soil health and ultimate value of land; in the future, that land may command a premium, Leading Harvet org trying to certify soil health, similar to Sustainable Forestry Initiative 14 principles
right now, 2M+ acres enrolled
example: invest in soil health, if you increase yields 4bu/acre on corn @ $4/bu and cap rate is 3.5%, that can lead to an increased land value of $400-$500 per acre. so in the long run it should increase farmland values hard for the appraisal industry to recognize that today but “I think that’s where the market is headed”

China
return to normal trade relationships around the world will take a long time
Bruce: the half-life of healing is twice as long as the event, so 4 years to be fully back
” a bushel lost in the US may not come back as quickly as it used to” with SA ramping up
but positive is more people globally will be eating better food
Steve: farmland values have held up “quite well” even though we’ve been in a downward trend on commodity prices the past 7 years
but the cap rate compression and farmer buying are more impt than the trade issues right now
if you take a Midwest farm and lower the rental rate by $50 per acre but also lower your return expectation by 50 basis points your land value stays relatively the same (96% of one another)
re: farmland values, what we’re watching is who the buyers are, what cap rates are, what interest rates are

https://www.cmegroup.com/education/videos/archive-south-america-grain-and-oilseed-markets-overview-and-drivers.html

October 26. CME Group’s Grain and Oilseed Markets Overview and Drivers webinar with Erik Norland, Senior Economist at CME Group, and Peter J. Meyer, Head of Grain and Oilseed Analytics at S&P Platts. The discussion explored today’s macroeconomic and crop fundamental drivers, including the Brazilian real’s impact on the global price of soybeans and the relationship between energy prices, ethanol, and corn prices. The analysts also covered the current outlook for South American crops and the impact of the impending La Niña on production.

Erik Norland:

Covid is causing a shift to less expensive protein so increasing chicken, pork, and eggs and less beef. This is changing the dynamics of soybean demand.

To understand the global corn and soybean markets, you have to understand China. In late October, China released updated GDP numbers showing 4.9% GDP growth.

Industrial activity was up 8-9% YOY, very strong. Has a big impact on soybean demand. Soy oil demand is very strongly influenced by the state of China’s economy. But China exports are way down, and with more decline in US and EU economies due to Covid right now, it’s not good news for soybeans.

We are worried about oil demand due to big increases in Covid-19 cases. The global oil market is down. We could see a big drop in crude oil prices. US travel is only back to about 65% year-over-year. Spain, Italy, and France are back into curfews and lockdowns due to Covid. Ireland and Israel are back in full lockdown. Covid lockdowns will be very difficult for the oil market. There’s lots of oil in storage and falling demand over winter. 90% of the world’s population lives in the Northern Hemisphere. We could see a big fall in crude oil prices. Europe is now getting worse re: Covid v. US, so the Euro will weaken again. You can expect weaker oil prices in the Northern Hemisphere this winter.

Soybean prices often track the crude oil market. WTI (West Texas Intermediate, oil price per barrel) is a leading indicator of where soybeans will go; if crude oil prices fall over the winter, it may not be good for soybeans. Soybean meal price often tracks the Brazil real. The real was up until about 6 months ago and commodity prices more or less followed it. However, the real is now very, very weak. Brazil had a very serious Covid problem May-Aug but now it’s way down from its peak.

If you want to know where currency rates are going and how they impact the price of soybeans, don’t forget to look at the Covid data.

Pete Meyer:

S&P Global Platts provides analysis and market insight. We are not brokers, we are not traders. Primary focus is on the global oil and energy markets, and agriculture falls under that.

Tracking global production and ending stocks for both corn and soybean, no question the market is bullish. Corn and soybeans have been making new highs.

Corn: We have the lowest global corn stocks since 2014/15. We (Platts) are lower than USDA’s number of 300M MT; we are at 290M MT, and maybe even a shade lower. Global production is up 100M MT (9.5%) from 14/15 to now, and actually maybe even up 150M MT because 15/16 was such a poor production year. What’s important to note is that global production went from 1.06B MT to 1.16B MT but we still have these low global ending stocks.

Soybeans: Production increased from 315M MT to 368.5M MT from 2014/15 until now. Where’s all the production coming from? In 2015/16 Brazil produced 97.5M MT, last year it was 126M MT, and this year – depending on the weather – we forecast 133M mt. So, Brazil responsible for 70% of the global production growth in soybeans.

Export competition for corn is US, Brazil, Argentina, and Ukraine. For soybeans, “it’s a two-horse race”: Brazil and the US. “Don’t sleep on Ukraine”, it’s now a Top 4 corn exporter even though it only exports 32M mt. The Ukrainian head of grain in 2017 said that Ukraine is committed to being a low-cost provider of corn and wheat to the global export markets. From 2000 to 2020, Ukraine corn production went from <5M mt to nearly 40M mt. The only way for Ukrainian farmers to make money with their corn is to export it, very little used for livestock and poultry.

Corn: Brazil has now expanded acres planted from a little over 16M ha in 2015/16 to almost 100M ha in 2020/21. Brazil will export 110M mt this year, a 180% increase from 2015/16. US corn exports have been relatively flat year-over-year over that same period. “It’s why Brazil has become so important on the global stage.”

Soybeans: “even more dramatic” than corn in Brazil. Their area harvested jumped from 33M ha in 2015/16 to > 38M ha today. “It’s just unbelievable.” The will continue to increase as they bring more of the Cerrado savannah into production, “there’s plenty more to go.” There’s a linear upward trend, 55MMT exported in 15/16 rose to 90MMT for 20/21 (projected). At the same time, US soybean exports at 50MMT remained flat or even slightly down.

Brazil’s soybean dominance emerged before the Trump trade war. For 2015/16, Brazil and the US exported about the same amount (53-54MMT). From then until now, US exports stayed about the same. But in 2020/21 Brazil will export 40% more (+ 25MMT) than the US.

From 2015/16 until now, there’s been a huge increase in the gap between Brazilian exports and the US. Brazil now exports twice what the US does. The difference in 2019/20 is 46MMT. The US “has pushed China away,” “it took years to cultivate the relationship, days to destroy it.” US soybean exports to China are not coming back. “Now all of a sudden you think it’s going back the other way? No way.”

“We hear all the time: Brazil beans are grown for quality while US beans are grown for quantity.”

Brazil corn yields lag the US, but not soybean yields. On corn yield, the US is 2X Brazil in MT/ha. In Brazil, they don’t use full season corn, they have the “sofrina crop” which gets planted after the soybean harvest.

Brazil soybean yields are “very impressive”, have continuously improved and are now equal to US yields.

Yields of corn in Argentina are better than Brazil but lower than the US. Production has been flat the last 3 years, and it’s expected to remain flat.

Argentina is the soybean meal provider to the world. They produce a steady 30MMT/year and export almost all of their meal.

La Nina may cause a problem in Argentina and then what happens with meal prices and supplies globally.

Drought. In the US, it’s moving toward the north and east. In 2011, it was Texas and the southern Plains. The current setup points to the northern Plains (western IA, SD, ND) being at risk. Even during this year’s crop tour “western Iowa looked very dry.” Have to watch going forward because the La Nina effect will cause a stormy winter in the Ohio Valley and eastern Midwest so “where does that leave western IA and NE”?

The South America growing season “not off to a great start”, “it’s been very dry.” They use the NASA GRACE-based root zone soil moisture drought indicator, that’s their preference. Argentina and southern Brazil are well behind on soybeans “but if there’s ever a group that can plant fast, it’s Brazilian farmers” (given the size of their planters). Argentina tends to be a little slower. What does this mean going forward? The soybean crop down there is going in late. That means you have to be cautious on what Brazil’s corn production will be because the sofrina crop will be late, too.

“Our meteorologists think it will be a moderate La Nina” but it will have a negative effect on yield so be prepared for lower-than-normal soybean yields. Corn yields same thing, not as much in Brazil but Argentina “certainly has some risks to it.”

The question we get from all our clients all the time: “What is going on with the futures curve?” It’s “what everybody is talking about.” It’s telling us the South American crop will be OK but the ethanol guys are competing with exports, they want the corn now, so the “export market is hot.” Corn farmers say “store and ignore” and it would have looked good back in July but right now “it’s kinda tough.” Lots of demand “in the front” and “a lot of confidence in the back” for corn, corn spreads are the tightest since 2012.

The Brazilian farmer is no fan of the US farm subsidies. Total farm subsidies up 225% under Trump, over $40B just in 2020. It allows marginal producers back in the game. That means there will be more acres planted next Spring. How bullish will grains be when the South America harvest begins to hit the market? “Our modeling hasn’t even started yet because not enough has been planted in South America.” But there’s “no doubt that La Nina will have a negative effect on the South American harvest and yield.” It’s “gonna be a long season.” “If you take 6, 7 or 8% off and the Chinese keep buying, then you have a problem on your hands.”

The question we are dealing with at the moment: Is China buying for 1 year or 2? Don’t know. They certainly have the storage so they could be buying for 2 year. But they need more beans now as they are coming off the ASF problem. “We are having spirited discussions with clients and other analysts right now: Does China really need that much?” The cupboard is “very bare, especially in Brazil.” We just saw Brazil importing soybeans from the US for biodiesel. And Brazil just lowered their soy oil component in biodiesel because they don’t have enough beans left, they sold them all to China. And they just eliminated their import tarrifs on soybeans. “So, it’s gonna get tight.” How bullish is it? “The highs are definitely not in at this point.”

Because Brazil farmers have sold all their soybeans and with the weather issues now, how do you see them managing their hedges? “That’s a problem, right?” “I think you’ll see some defaults but I don’t think you’ll see them come wholesale into the market to cover their shorts. They will take the easy way out, which is default. Bolsonaro says “we will stay open and make this orderly.” It’s a bigger issue in Brazil than the US. “We run the risk of some sizeable defaults in Brazil should the weather not cooperate.”

The Ukraine crop is down, moisture is very short but an interesting tidbit: They couldn’t get winter wheat in because it’s too dry so now they’re talking about planting extra corn acres in Spring.

Soy oil? “Not a week goes by where I don’t get a question from one of our oil clients about the availability of feedstocks for biodiesel. It’s been going on for months.” We don’t know anything about fats and tallows but there’s a reason the largest renderer in the US (Darling) has a joint venture with Valero to produce biofuel. Major oil companies are struggling to figure out if they can get the supply and can they get it over the Rockies? It’s OK if it’s coming from the Port of Vancouver. Marathon has a biodiesel plant in North Dakota now. There will be a pull on soybean stocks, which is bullish for soybean prices.

SwineIT Steve Pollmann Nov 17 2020
How to effectively apply benchmark in pig production

benchmarking = where you are relative to the industry
to improve, we need to know what the competition is doing
it’s a reality check
how are we doing v. industry as well as the biology of the pig
the 2 big ones cost of production & profitability
live hog production is a throughput business
sow farms key metric: weekly pigs produced; that is, a consistent output of high quality weaned pig each week. Consistent throughput means that PSY is not a good metric to measure business success.

wean2fin: biggest single indicator is w2f livability; if it’s good, everything else comes along. Livability means % pigs placed that go to market, it’s a good proxy for health status

caloric efficiency is a bit of a blur because a lot of the caloric values are not necessarily aligned with the benchmarking systems

I like to keep it simple “if I can keep the pigs living and growing fast then feed efficiency or caloric efficiency are just outcomes. There are so many adjustments you need to make for apples to apples comparison e.g. start weight, days on feed, caloric density of the diet, slaughter weights, pellet v meal, ractopamine or not; to do a good benchmark on feed efficiency is challenging

stretch goals move benchmarking from an academic approach to a business activity. “this is where we’re at, this is where we need to be”, then establish values on the key metrics we need to improve. Once you do that, then you can put together the tactics to get it done

You need to be realistic e.g. if your goal is a 3% w2f mortality and you’re running 8%, that 3% is not a realistic target so stretch goal should be realistic and attainable. If internal benchmarking shows that, for example, the Top25% mortality is 4.5% then why can’t I get the rest of my system to that level?

The fundamental definition of improvement is to decrease variation, when you decrease variation you will generally see improvement. Example: Something he saw, 4 closeouts represented 75% of the variation in the system so you know where to work.

Should you assume expected genetic improvement? We know we will get 1-3% annual improvement due to continuously improving genetics (depending on the parameter) so at the commercial level you should be getting that level of continuous improvement otherwise you’re getting further behind.

One of the real goals is comparing rate of biological improvement
sow farms typically 2-3% annual improvement in PSY.

“𝘐 𝘥𝘦𝘧𝘪𝘯𝘦 𝘴𝘶𝘴𝘵𝘢𝘪𝘯𝘢𝘣𝘪𝘭𝘪𝘵𝘺 𝘢𝘴 𝘣𝘦𝘪𝘯𝘨 𝘢𝘣𝘭𝘦 𝘵𝘰 𝘤𝘰𝘯𝘵𝘪𝘯𝘶𝘦 𝘵𝘰 𝘣𝘦 𝘪𝘯 𝘵𝘩𝘦 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴. 𝘈𝘯𝘥 𝘵𝘰 𝘣𝘦 𝘪𝘯 𝘵𝘩𝘦 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘺𝘰𝘶 𝘨𝘰𝘵 𝘵𝘰 𝘣𝘦 𝘮𝘢𝘬𝘪𝘯𝘨 𝘮𝘰𝘯𝘦𝘺. 𝘛𝘰 𝘥𝘰 𝘵𝘩𝘢𝘵 𝘺𝘰𝘶 𝘨𝘰𝘵 𝘵𝘰 𝘣𝘦 𝘴𝘶𝘤𝘤𝘦𝘴𝘴𝘧𝘶𝘭 𝘢𝘵 𝘱𝘳𝘰𝘥𝘶𝘤𝘵𝘪𝘰𝘯 𝘦𝘧𝘧𝘪𝘤𝘪𝘦𝘯𝘤𝘺.”

In 2020, there’s a lot of noise in our data sets so maybe set 2020 aside and say it’s an outlier?

Benchmarking helps you define what success can be, it’s easy to become complacent, if you continue to only hit averages it means you won’t be world class; strive to be in the top 25% in each KPI.

biology v. actual still far apart, maybe 25-30% difference so a long way to go.

You really want to look at lead indicators; performance results are outcomes of what’s happened over the past 6 months so leading indicators are what’s happening weekly with mortality or treatments or market weights then easy to get behind; when the lead indicators get better, the closeout results will come along; another lead indicator is feed outage, define what it is for your system, measure how often, reduce it and performance gets better. His definition “anytime I walk in a barn and see an empty feeder, I have a feed outage” doesn’t matter if it’s 5min, 10 min, or 3 hours, it’s still a feed outage.

Economist Steve Meyer, Partners for Production Agriculture (Kerns & Associates). From National Hog Farmer’s Global Hog Industry Virtual Conference, Oct 22.

A fundamental challenge in determining the total capacity of the U.S. pork packing sector in 2020 is defining just what capacity is. The traditional question of “How many hogs can you harvest in a day if margins are good and hogs are plentiful?” simply doesn’t address all of the constraints packers have faced in a COVID-19 world. Table: 2020 US processing plants & daily capacity.

For the past 3 years, labor availability has affected plant capacity. In 2020, with Covid, the impact was both labor availability and ability to work. Especially limited value-added processing like de-boning and by-product capture. Sow processing plants have been affected by reduced CO2 availability. 

Reduced packing plant capacity has been mainly due to Smithfield plants in the southeast: Tarheel, NC and Gwaltney, VA. They have been running at 70 to 80%. Lots of problems getting people back to work. Recently, though, things down there have been getting better, e.g. Tarheel up to 30,000/day this week. 

The theoretical maximum weekly kill is about 512,000 head or about 2.77M per week. With Saturday kills, that could go up to 2.85M head. It is possible to hit 393,000 on a Saturday but not on a continuing basis. Today, US pork processing plants are running about 96% capacity, Being able to kill 492K daily will really help this Fall. 

Don’t expect to get back to full weekly kills due to lack of big Saturday kills. Saturday kills are difficult now due to labor issues. Plants might be able to do 2 weeks in a row but more than that and people don’t show up for work on Monday. Triumph Foods is trying 2-weeks-on, 1-week-off rotations for Saturdays right now. 

Sow plants are running about 15,000 per day, 60K per week. Theoretically, sow plants could handle 75,575 per week. So far in 2002, many weeks have been 68,000 to 70,000 sows. The highest week in 2020 hit 70,296 head. Sow processors are getting all they want, no need to bid any higher than $25. 

Weekly sow kills so far in 2020 do not reflect a large reduction in the breeding herd. Some of the weekly kill numbers may be inflated by producers sending heavy barrows and gilts to sow plants.

Can we count on more near-term packing plant capacity? Possible increases but not soon. Wholestone Foods is aiming for a second shift starting in early 2022; they are currently remodeling the old Spam processing lines into carcass processing. The Prestage plant in Iowa could second shift right now but they can’t’ find the labor to do it. 

Labor (lack of) is a big problem and likely to get worse. Fewer immigrants, borders closed, and a decline in applicant numbers due to Covid-19. 

Packer margins have been very good but remember that margin is not a profit. It’s a gross margin and the COGS only includes the cost of the purchased pig. Meyer estimates that $40-$5/head is needed to pay for the other plant operating and overhead costs. 

Packing plant capacity in 2021 will be the same as it is now. 

Backed up market hogs were almost all in North Carolina, producers in the Midwest are current and that’s why we are seeing real strength in the cash hog market now.

In 2021, we’ll have slightly higher production and more market hogs but we should have enough packing capacity to handle it. Unless there are more problems due to Covid-19.

There’s not much incentive to build new plants. If any are built in 3 to 5 years, there will be substantial producer involvement like the Triumph Foods model.

Pig production cannot grow without more packing plants, there is a capacity constraint. The number one limiting factor is labor and will be as far as the eye can see.

There will be more mechanization and automation in plants but it will happen slowly. Machines can’t catch coronavirus. Because of Covid, automation looks relatively less expensive than it did a year ago. The interesting question is what happens to older plants that aren’t capable of adding automation technology? They will become higher cost and less competitive over time. 

In terms of capital investment in plants, Steve says “what’s the probability of this happening again?” If it’s 25% within 5 years then plants will have to figure out how to boost capacity now. But the real probability is much lower so doing things like building a bunch of small plants would be a waste of time and money even though the government is talking about providing $ to do just that. 

From a keynote presentation at the recent (Sept 22; virtual) Leman Swine Conference, featuring the senior leadership team from the Hanor Company: Myrl Mortensen, Dave Wade, and Dr. Tara Donovan.

The presentation’s focus was “how the Hanor vision for change includes a strategy to bring added-value to their business. ” Hanor’s tag line is “Leading in Quality, Value, & Innovation.”

Hanor has 95,000 sows and is part of the Triumph Foods system. Triumph is a pork processor jointly owned by large independent pork producers including Hanor, Christensen Farms (143,000 sows), Eichelberger Farms (62,000 sows), New Fashion Pork (57,000 sows), and Allied Producers Cooperative (86,000 sows). More background on Hanor (Farm Journal’s PORK magazine, Sept 2017).

Hanor’s driving values around internal company leadership include (1) challenge the current mentality, (2) evaluate constraints in the system, (3) ‘sharpen the saw’ sessions, and (4) use data to analyze and make informed decisions. Hanor’s organizational teams:

• Production
• Nutrition
• Vet Services
• Analytical & IT
• Accounting
• Transport
• HR
• Production Solutions
• Compliance

Internal assessments are done by an audit team, part of compliance. It’s tag line is “do what you say you do… and document it.” Internal audits include (1) Hanor Production Practices which are Hanor’s SOP’s; (2) animal well-being program; (3) basic skills in employees, growers, and caretakers; (4) advanced skills in managers and service people; and (5) biosecurity.

Key production practices on sow farms:

• Increase age at weaning, minimum 17 days and goal is to average 20+ days, based on internal research by Dr. David Rosero (Senior Nutritionist and Technical Leader for Hanor; influence of wean age and health status on progeny lifetime performance). Wean-to-finish mortality increased for each day wean age was less than 20d, and a greater effect when pigs had health challenges.
• Go back to a single multiplication farm flowing gilts to all the commercial sow farms (rather than using internal gilt multiplication on each farm) because they decided to move to a PRRS eradication strategy. A single multiplier will give them PRRS-negative gilts to introduce to closed herds. The internal multiplication strategy worked well to keep PRRS+ sow farms stable but continuous flow GDU’s with young gilts on-site produce gilts that are born viremic so impossible to eradicate PRRS from that farm.

Key production practices for the grow-finish system:

• Single-source pig flows. So they have built “staging nurseries” on sow farms to be able to fill trucks with a single-source flow. They don’t want to co-mingle nurseries into finishers so they have built grow-finish sites sized to accommodate single source flows from nurseries.
• Changed back to nursery and finishing sites instead of wean-to-finish barns. Why? Fewer sites so they can put more focus on the newly-weaned pig plus better heating strategies and more labor to young pigs. Performance has improved. Also, if they can keep nurseries PRRS- and PED-negative in pig dense areas, they get <1% nursery mortality.

Key practices in the health program:

• Monitor sites for PRRS,PED and PDCoV. Profile herds by using processing fluids, oral fluids (rope samples), and ear swabs. Their goal is to prevent lateral infections (PED, PDCoV), i.e. site-to-site in pig dense areas like Iowa)
• Eradication strategies using gilt multiplication.
• Biosecurity enhancements are a big focus right now including (1) composting or incineration at all sow farms; (2) additional truck drying systems; (3) filtered boar studs; (4) Danish entry/bench entry on sow farms; (5) weaned pig hauler stays in truck and contract driver parking.

Key practices in the nutrition program:

• Mobile feed ordering and automatic feed tracking and verification.
• Immune packs for situations with health challenges: (1) sow PRRS pack; (2) specialized nursery diet for young pigs and PRRS-challenged pigs.
• Summer feeding program focused on (1) growth during heat stress and (2) reducing summer infertility in sows.
• Using a caliper for measuring sow body condition. It’s an objective measure, staff can be trained to measure condition with consistency, and “we’ve seen substantial feed cost savings.”

Hanor’s in-house, state-of-the-art research facilities:

• GDU research barn, 1,000-head; measuring feed & weight
• Sow farm, 2,800 sows; measuring feed & weight
• Nursery, 2,400-head; measuring feed & weight
• WTF/Finishing, 2400-head; measuring feed & weight

On sow farms they use hallway scales for sow weights; scales for both individual piglet weight and litter weights; cameras; automated lactation sow feeding (ESF lactation system). In the WTF research barn they have a robust water medication (Dosatron, I think) designed to be able to run 8 separate lines for good experimental design when testing therapeutics delivered via water.

Smart farming pilot projects at Hanor:

• Real-time access to environmental metrics (water, high-low temps, humidity)
• Real-time employee location tracking for work flow
• Smart cameras for estimating weight. They are running trials to calibrate the camera system against actual scale weights.
• Feed bin monitoring (weight)
• Cloud-based data integration and analytics

New production techniques they have adopted:

1. GenePro intelligent automated insemination system
2. Pulse needle-free systems for injections
3. Caliper system for sow body condition scoring. More background.
4. Weigh tubes for estimating weight in finishing barns

Which of these are you happiest about? Dave Wade: Caliper for sow body condition scoring. Dr. Tara Donovan: Calipers. We are now full feeding sows in lactation and the calipers “have taken the guesswork out of step feeding. It’s also “taken the guess work out of feeding sows in gestation because we aim for hitting an objective body condition score.” It’s “brought a discipline to the system” and “has saved us millions of dollars.”

Should the pork industry get smaller? Myrl: “Labor is an issue especially in slaughter plants. Right now plants are at 90-95% capacity due to Covid-19, and we should probably get used to it. We spend more time talking about pig flows, balancing pig flows, that we ever used to. Until coronavirus, if you had excess pigs [he’s talking about more than Triumph needed or wanted], you could find them a home with other packers. But “that luxury is gone.” Everyone will have to stay self-contained within their own integrated system based on processing capacity. So live production will have to “shrink some.” We have too much pork right now and year-over-year production and productivity keeps increasing. Our strategy is to shrink our sow numbers each year to maintain balance based on slaughter capacity within the Triumph system. “It’s a new paradigm. I never thought that balancing your pig flows would be so important, so vital. I don’t think we can have excess pigs ever again. You will have to match very carefully your pig flow with your available shackle space. We have to get a lot more disciplined than we have been. So, yes, we will see the industry shrink, not so much farms and buildings but sow numbers will go down.”

Next steps regarding consumers and increasing pork consumption: “Develop more sustainable production systems that are totally auditable. Food companies will be doing these audits. That’s what we use our Pederson Pork model for, we’ve learned a lot about what consumers and high-end retailers want, they come in and audit our system very rigorously. Our industry has to get more in tune with reality because that pressure is coming and at a faster pace. Look what the poultry people do.”

Myrl Mortensen is President of the Hanor Company which he founded with partners in 1997. He has grown Hanor’s operations to over 650 employees caring for pigs in 780 farms across seven states.

Dave Wade is vice-president of Operations at Hanor, where he has managed the genetic and sow operations since its beginning in 1997 when he joined Hanor as part of the founding team.

Dr. Tara Donovan is a veterinarian and vice-president of health management for the Hanor Company. Her responsibilities include oversight of veterinarians and technicians responsible for animal caregiver training, oversight of the company’s animal well-being and quality assurance programs, biosecurity program training and development, pharmaceutical management and compliance, and on-farm swine health practices.

Steve Pollman @ SwineTalks online conference (SwineIt). Oct 7, 2020.

 “Looking back, I’ve learned important lessons having to do with people. In the past, my efforts were focused primarily on the technical aspects of pig production. Today, I believe that Human Capital Development (HCD) is a major concern and a key area that needs more attention. I’ve come to understand that it’s one of the most important elements of a company’s objectives, vital to a production system’s growth and productivity.”

HCD is an intangible asset not on the balance sheet. It’s an employee’s education, training, intelligence, skills, health, and especially loyalty.

The biggest weakness of pig production today is “insufficient leadership skills.” And the greatest need is leadership training for middle managers.

“Current attempts at human capital development in pork production systems are meager and superficial.”

“Create a business where you’d be happy to welcome your children and grand-children into it.”

“HCD must be a part of production improvement initiatives.”

Do a candid assessment of where you are today, and then start, even if it’s in small steps.

The outcome will be more highly engaged employees and improved business performance (less turnover, fewer lost-time accidents, and better productivity & profitability).

Seven parts of a human capital development program (listed in priority):

1. Start a quarterly goals review
2. Prepare a well-defined structure that includes all organization levels
3. Review hiring practices
4. Do a talent inventory of current and future needs
5. Start doing focus groups and launch engagement surveys
6. Teach, embrace and model “situational leadership”
7. Put in place a mentoring program

Quarterly goal review: should be a focused sit-down one-on-one, not while walking through a barn or over lunch. 

The quarterly goal review process has to be led by management, assisted by HR, and not the other way around. 

Discuss 3-5 quarterly goals (syn:priorities), this should not be about routine tasks.

Ask: How can I help you be successful?

“The employees with the greatest need are the ones that usually get procrastinated or neglected.” Therefore…You need a monitoring system to make sure the goal review process is happening.

Historically, people have been promoted based on their excellent technical skills but they lack leadership skills. This cannot be an off-the-shelf, canned program. Come at it by thinking how you will help farm managers and department heads become more effective leaders. Leadership activities must focus on conflict resolution, priority management, and executing effective goal reviews.

There is a great opportunity to leverage vendor expertise and resources, “they are happy to do it”.

For new hires, orientation and on-boarding are being done well today. Other aspects are “fairly weak.”

“We’ve promoted too many great breeding technicians to be farm managers. It’s a completely different skill set. Some are successful, most are not. And the consequences are more stress for everyone and more production variation.”

Regarding a talent inventory, do a critical assessment of both high and low performers and high and low potential. Low performers with low potential should be identified and a decision made. Typically, managers are slow to react even when it’s obvious that someone should be transferred or fired.

Historically, employee turnover and lost-time accidents have been used as KPI’s for monitoring . But they are not related to employee engagement. 

Start with small focus groups. Ask: “What can I do to help improve your job satisfaction?” Eventually, move to annual, quantified employee engagement assessment (outside companies can provide expertise). 

When there are big differences in engagement and satisfaction scores across farms (some farms high, some low), it’s most often related to the leadership at that location.

Situational leadership: directing, coaching, delegating, leading. “I truly wish I would have understood this leadership method better earlier in my career.”

Most people have 4 or 5 major accountabilities. They might be good in some, but not all. You should be able to adjust your leadership style according to the person’s need.

Everyone needs a mentor but especially high-potential/high-performers. It’s best if it’s not the boss. 

HCD requires massive commitment and effort. It needs to be led by management. Managers should spend at least 2 hours each week on it. It must be an integral part of production improvement activities. Do a candid assessment and start, even if it’s small steps. Don’t be satisfied with only an on-boarding process and technician certification program. The outcome will be more highly engaged employees and improved business performance. 

We often hear about the problems with labor in the pork industry but we need to put a magnifying glass on senior management.

Link (it may not work if you didn’t pay to attend)

Mark Greenwood’s keynote presentation at this year’s Leman Conference (Sept 19): Where Have We Been and Where Should We Go? Mark is one of the financial lender/banker icons of the pork industry. He is the chief diversified markets officer at Compeer Financial, and is on their Asset/Liability Committee. Main points…

• Compeer financial/production database represents over 20% of the US pork industry, production systems across the US, and sales to all processors.
• Production benchmarks, best of the best:
  • New sow units routinely above 30 PSY.
  • Large systems (40-50K sows) are running system-wide 26-27 PSY
  • A few large systems are >30 PSY system-wide
  • Nursery mortality < 2%
  • Finisher mortality < 2%
  • Grade A pig sales > 94%
• GAAP-basis Owner’s Equity (OE) remains at a good level, was at 60% ending 1Q 2020. Since 2015, 68% was the highest (which was in 1Q 2015) and 55% the lowest (in 1Q 2019).
• “We’re in very good shape with working capital (current assets – current liabilities). Today it’s > $800/sow. “We have more liquidity today than 1Q 2019.” For perspective, Compeer underwriting guidelines are $400-$500/sow.
• “What I’m telling you is we have a lot of liquidity in the industry right now and a good amount of staying power.”
• Cost-of-production (COP), best of the best, right now is in the mid-$60’s (per cwt), lower by almost $5/cwt from 2019 due to cheaper corn and SBM.
• Last 5 years, producers have made money either by being integrated (with packers) or by doing a very good job of hedging.
• All profit in 2020 has been through gains from hedging, almost a $10/head profit. Through mid-August, producers have been very aggressive on hedging through next April to minimize losses.
• The gap in negotiated net price (cash) to cutout has been wide for the past 5 years. It’s 70% right now. Open-market producers cannot survive on that big of a gap. Negotiated net price at 60-70% of carcass cutout is not a sustainable business model.
• Packer-owned share of total slaughter now 35%-40%, up from 27% in 2010 and accelerating.
• “If you’re coming to us for financing to build a brand-new sow unit and say we’re gonna sell pigs on a negotiated market we’re gonna say ‘Is that a good decision?’. To get financing today, producers must be in a more coordinated relationship with a packer.”
• Right now, producers are waiting for other producers to concede and leave the industry. The Top 40 largest systems represent 70% of the industry. It’s consolidated to a point where almost all producers are all-in. Not enough smaller producers to move the needle on reducing supply.
• “We don’t need 6.3M sows in the US.” He’s worried about too many pigs in 2021. “If Jun/July futures are in the mid-$80’s, we’re going to save every pig possible.”
• A question he gets all the time: “Do you integrate or exit?” Answer: “Don’t know but absolutely must collaborate more effectively with the entire supply chain.”
• “We are probably going like the broiler industry.” Vertically integrated with production being a cost center to processing.
• Re: processing disruptions due to Covid-19 and backing up pigs on farms. (the live side ended up being the slack in the supply chain). Question: “Where should slack be? Answer: “I think it has to be on the harvesting (processing) side.”
• “Can we have slack capacity in production? No. “We had producers with $90 hedges in June who had to euthanize pigs, I never want to see that again. You can’t ask farm staff to euthanize market animals. You may be able to abort sows, slow pigs’ growth, cull more heavily, make more lightweight sales, and not move potential reject weaned pigs to nurseries but it’s not a sustainable solution.”