Plotting The Way Ahead
Representatives from the procurement industry share how they make data-based decisions to help drive the pork sector ahead.
When we think about swine production in 2018, there’s a lot of areas of the industry to consider. The procurement sector takes great care in making purchasing and processing decisions.
For this Benchmark article, we asked two professionals in this sector to give some insights into the data they use to support choices and the ways they can use the information they collect to make future decisions.
In the first piece, Mike Porth, a senior procurement and business development manager with a processor, highlights the changes he has observed in the pork industry over the last few years. He explains how the data we viewed and collected in the past is just as important today, and what we can do with those numbers now. “Information is powerful,” Porth stresses and he walks us through how to put this data to use in the future.
Next, you’ll hear from Jesse Sumner, production control director for Prestage Farms. He outlines some of the changes his operation has made over the last few decades. Sumner notes some of the key factors that the team took into consideration while expanding its operations.
Preparing for the future through data analysis
By Mike Porth
In 2016, PigCHAMP asked me to review the value of its benchmark data from an agri-food industry person’s perspective, as opposed to a producer standpoint. In this piece, I discussed keeping myself abreast of the key performance indicators (KPIs) that support producer productivity and profitability, as this information impacts the food processing industry. I noted how third-party unbiased data, such as that from PigCHAMP, is critical to help me stay “in the loop” about the swine industry.
This year, PigCHAMP asked me to review what data supports decision-making in the meat-processing industry, what’s collected to support these decisions, and what kind of data will influence decisions over the next three to five years.
Let’s begin by reviewing what has happened in the past couple of years since my last article. The pork processing industry in the United States has expanded its production and witnessed unprecedented capacity growth. Both domestic consumption and export markets have expanded. Changes in federal government officials could result in possible changes to trade relations and processing regulations. Together, this range of moving parts may influence how we make decisions, especially when reviewed in light of past indicators.
Pork producers and processors will still need to review a lot of the same data we examined in the past. Important areas of focus include U.S. Department of Agriculture (USDA), Chicago Mercantile Exchange (CME), and Chicago Board of Trade (CBOT) market trends, as well as PigCHAMP productivity movements. The PigCHAMP charts on page 22, for example, allow us to review data on the top 10 percent of hogs and compare it to the mean data. The difference between the two sets of figures could mean the difference in profitability during lean times, depending on a producer’s cost of production.
Notes: TB – total born; BA – born alive, P/W/M/S – pigs weaned per mated sow per year, FR % – farrowing rate percent
We will use this type of information to support ongoing production benchmark reviews, conduct market analysis and identify trends. We will look to understand how world trade and consumer demand are changing, and where the shifts in the marketplace are happening.
Our industry will certainly have outliers like the PEDv outbreaks in 2014, in which one disease or possibly world event could move the market beyond anything historical or trending data would ever suggest. It’s tough to plan or forecast these outliers.
As the 2014 mean data shows, the pigs weaned per mated sow per year (P/W/M/S) trend dropped about half of a pig from the previous year. When looking at the larger context, however, the trend was actually improving at an approximate half pig pace per year. When we combine the lack of improvement with the drop over the 2013 figure, in reality, it can be argued we truly dropped a full pig of actual versus trend P/W/M/S in 2014.
Overall, however, we still need to be tracking this production data. Analyzing trends, whether over three, five or seven years, is key to understanding where we have been.
This information also helps paint a picture of what is possible in the future. Such data will continue to be the basis of budgets, forecasting, and profit and loss targets, while industry representatives also track the political influencers to trade and keep their eyes open for the next outlier.
So, how will the collection of data change in the future? How will the analysis of trends and databases shift? Likely, we will continue to monitor the same data but how we evaluate it could evolve.
Increasingly, we are hearing more about analytics in our everyday lives, whether in the form of sports teams’ reviews of draftees, or business reviews of patterns and statistical differences in data. Ultimately, this type of analysis can impact a business’s productivity and profitability.
Large money funds analyze the probability of a range of variables, such as weather, health and exports, to position trade for a bull or bear market scenario. They review everything they know to help them understand which direction the market could go.
Pork producers also are working with commodity market analysts to make production and marketing decisions, based on an understanding of demands and market trends.
The old saying “information is powerful” will take on new meaning as we move forward.
Our producers expect business partners to understand their businesses and KPIs that drive their operations. It’s my job to keep abreast of what’s happening with nutrition trends, genetics, as well as overall productivity.
The fundamentals of supply and demand will form the basis of what we do. The industry, for example, has concerns about adding about 10 percent more harvest capacity and keeping the product moving off the shelves. The question becomes: can we move the additional pork at competitive prices, even as the production of other proteins continues to expand as well?
Data, markets and consumer purchasing habits will play a key role in the ongoing success of the industry. Those individuals and companies that use this information as a resource for decision-making will have a competitive advantage over those who do not. Consumers will have more choices for protein than in the past, so we will need to consider if price point, quality or other factors will sway consumer’s purchase habits. How we get to the bottom line will be a game changer for those who adopt and implement this new technology.
Frequently, we see the disclaimer “past performance is not indicative of future results.” I believe, however, that we must understand where we have been and why in order to understand what could be possible. The collection and analysis of data allows us to understand the past while providing some insight into the future.
In closing, grab some popcorn and your favorite beverage as the next few years will be exciting and exhausting. How we react to the changes in our industry could be both rewarding and head scratching at the same time. Super-size my order!
Editor’s note: the views in this piece are presented by Mike Porth, based on his 35 years of experience in the pork industry, and do not represent the viewpoint of Smithfield Foods, Inc.
Mike Porth is director of pork procurement with a focus of business development in the Midwest with Smithfield Foods. He has 35 years of experience with several Fortune 500 companies, working in the genetics, production, nutrition and procurement areas of the businesses.
Making decisions: from producer to processor
By Jesse Sumner
Family-owned and -operated Prestage Farms is based in North Carolina where we began growing turkeys and hogs in 1983. Since then, we have expanded our protein production into South Carolina, Mississippi, Oklahoma, Texas and Iowa.
Initially, Prestage Farms focused on live production. In 2006, however, we expanded into protein processing. We purchased an existing turkey processing plant in St. Pauls, North Carolina as a chance to evolve with the industry.
We recently embarked on a similar journey in the pork industry. Since we were already producing hogs in Iowa, we looked for an opportunity to support our investment in live production in Iowa.
Now, we are on the cusp of opening a pork processing facility near Eagle Grove in Wright County, Iowa.
This new plant will mirror the actions Prestage Farms took in the turkey industry more than a decade ago. It will enable us to expand our business into new territory and allow us to change along with the market.
A key factor in driving our decision to enter the pork processing industry was the spread between the pork cutout price and the live hog price. Since 2014, the gap between cash hog and the pork cutout prices has widened to historic levels, which is negative for live hog producers. The percentage of hogs traded daily for market discovery has also diminished to record-low levels.
Prestage will provide about half of the hogs for a single shift while still providing room for our neighbors who find themselves at a similar crossroads. Prestage will also provide room for spot negotiated hogs to be slaughtered daily at Eagle Grove. We hope this shackle space will provide more options for producers in Iowa.
We see a tremendous growth opportunity at Eagle Grove but our ability to connect with a customer base will be essential to the success of the new facility. We aim to find customers who will appreciate our desire to deliver an excellent product.
Bill Prestage, our founder, instilled in us the concept that a satisfied customer is essential to our business. This philosophy has proven to be the true driver of our success in our turkey processing operations. We intend to carry this philosophy into our new Eagle Grove plant – we will strive to serve our customers while maintaining a focus on the future.
Will it be easy? Tumultuous? Profitable? All we can say is that we have rolled up our sleeves and we are excited to find out.
As production control director for Prestage Farms, Jesse Sumner leads the strategic and tactical direction for production planning, sales and logistics. A graduate of Campbell University with a degree in business administration, he has worked with Prestage for 31 years. Started in 1983, Prestage Farms is a multi-generational family-owned and -operated agribusiness producing quality pork and turkey. Prestage Farms and its affiliated companies employ about 2,000 people and contract with 450 farm families with operations in North Carolina, Mississippi, South Carolina, Iowa and Oklahoma. A pork processing plant, currently under construction in Iowa, is the company’s newest venture.
Prestage Foods of Iowa is scheduled to open in late 2018.