Most of the ancients figured out by this time of the year that the long nights of winter were reversing course and the world would not end with a last glimmer of light on the horizon going perpetually dark a few months later. It took a few millennia to get it down to the day and hour of the annual turn in fortune (this year 11:47 a.m. GMT-6, December 21) and while celestial science has advanced remarkably since the middle ages and before, forecasting the fortunes of the pork industry in the United States and throughout the world is still done by measuring the lengths of shadows and staring at dry bones and tea leaves etc.
The United Nations Food and Agricultural Organization (FAO) believes, like the ancients looking for a light at the end of winter, that global population increases will slow and reach zero growth in the next forty or fifty years. As that happens, diets around the world will increase in both average calorie consumption per capita and in quality of nutrition. They don’t quite want to bury the long-dead Malthus (the economist who predicted food production would never catch up with population increases), but more like a Christmas ornament, they are getting ready to wrap him up and put him in the basement storage area until he’s needed again.
FAO is evolving its 2003-2004 forecast for 2030 and extending it to 2050. Essentially, it concludes that we are going to be all right with regard to food; in fact the best we have ever been as a world community. By that time frame, the last of the developing countries will have graduated to developed status and the great surges of growth that are currently sweeping China, India and Brazil for instance, will be over and a long-term, slow-growth pattern will have set in. Uncertainty remains for sub-Saharan Africa but it will not be for lack of opportunity. Instead, the ability of a new generation to overcome intransigent corruption will largely determine whether Africa joins the modern world or languishes in poverty and need.
Since the long-term forecast is pretty reassuring, what lies between now and then for pork producers? The fundamental factor which will drive the big changes ahead for pork producers is the realization that having a highly
productive and low-cost production system (while once both necessary and sufficient for profitability) is still necessary, but no longer sufficient.
Overcoming the conventional wisdom about this will be difficult for many and I would predict a significant number of the very successful farms of all sizes won’t make the transition, at least with current leadership. It was revealing to note a comment made by Mark Greenwood, vice president at AgStar Financial Services, a major lender to the U.S. pork production sector, that very few mergers and acquisitions have accompanied this sustained downturn. This suggests a strong sense by those surviving this “greatest of all challenges” that something different lies ahead. The rules are changing and there may not be a “new normal” in the near future.
You can say this in a number of ways, but there is emerging a growing demand for flexibility in livestock systems and the scale is tilting back in favor of those systems and even countries that can relax the rigidity of business-as-usual (standard operating procedures) when necessary without spinning chaos into their systems. This applies not only to production procedures but marketing strategies, cost and revenue management strategies, policy actions and employee management and practices as well.
Since the key to the future will be to consistently operate within a narrower range of variation (production and financial) than nature, markets and government(s) conspire to serve up, those who can develop and manage flexible production and financial strategies are more likely to outwit, outplay and outlast fixed systems, steeped in the current conventional wisdom.
Selectively deploying these strategies and then changing them rapidly as conditions warrant will replace the hide-bound truisms that production people love to embrace, but only in those firms that can make the transition. The last decade or two were the decades of the average (raising it, that is). The next decade is the decade of the variance: reducing it while maintaining or increasing the averages. That’s a tall order for an industry that doesn’t routinely even measure the variance of any production or financial measure.
Futures prices for feed ingredients and pork carcasses show a very hefty profit potential going into the summer. Some will capture it while others will forget it was even an opportunity.
Editor’s Note: Dr. Dennis DiPietre is a swine consultant in Columbia, Missouri. His monthly commentary is sponsored by Elanco Animal Health. For more information, go to: www.elanco.com
This commentary is for informational purposes only. The opinions and comments expressed herein represent the opinions of the author--they do not necessarily reflect the opinion of Farms.com. This commentary is not intended to provide individual advice to anyone. Farms.com will not be liable for any errors or omissions in the information, or for any damages or losses in any way related to this commentary.