Plan Ahead for Swine Profitability

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A solid financial plan and communication are key to successful pork production.

12.22.16    |    Risk Management
In the past, farmers didn’t have a lot of fixed assets wrapped up in hog production, so they could easily get out. And when prices went up, farmers would get back in. Today, we don’t have that luxury. Producers who get into hog production now tend stay in it because they have a lot of fixed assets that have to be covered. Expansion mode, which the industry is still in right now, takes time and investment. We encourage producers to set up business plans, which leads to a better understanding of the market and low-cost production. Those who take this step tend to have solid equity positions and balance sheets with little operating debt.
 
However, there is still hope for producers who currently find themselves falling behind. If you’re in this position, it’s time take a serious look at where you want to be in the pork industry in the future as you focus on being a lowest-cost producer. Keeping an eye on liquidity positions and making adjustments to improve will be key to survival now and success later.
 
Key points to discuss with your lender
 
When it comes to short- and long-term plans, there are a number of operating and expansion-related conversations you should be having with your lender. Consider the following:
  1. Communicate early and often with your lender.
  2. Can you meet the minimum recommended working capital level of at least $600 per sow? More is better, and some operators have three to four times this amount.
  3. What is your percentage of producer equity? We recommend at least 40 to 45 percent on cost basis in a farrow-to-finish operation. Expansions should have even greater producer equity to accommodate startup and operator losses.
  4. If planning an expansion, where are you in the process? Plan siting and permitting of expansions well ahead of time. Keep feed sources, labor and management, environmental regulations and hog manure management in mind.
  5. What is your marketing plan and what role do you want to play in the hog industry 10 years from now?
  6. How will an expansion affect succession plans for your family farm?
Thinking through these areas will help provide a clearer picture of opportunities and risk for your operation and open the door for productive discussion. Keep in mind that Farm Credit will work with many different kinds of hog operations to provide operating loans. We look for a solid business plan, sound management, good production and success going forward. Now is the time for pork producers to watch their balance sheets closely and always communicate any changes with your lender.

Ron Durre, Regional Vice President of Agribusiness

Ron Durre is the Regional Vice President of Agribusiness for Farm Credit Mid-America. He is based in Louisville, Kentucky.

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