Our swine industry is currently in the expansion phase. This is taking place despite/ because of changes from many important fronts. Among these issues are: very rapid changes in industry structure; sharp declines in the number of producers, especially independent farms; strong resistance from the non-farm population regarding odor, location, hog farms in general, packing plants, etc.; environmental/economic problems with waste and water; regulatory uncertainty; and geographical shifts in the swine herd away from the packing facilities.

The most recent hogs and pigs total inventories (September 1997) were 4 percent larger than last year and only slightly below 1995 levels. The June- August U.S. pig crop (most recent quarter) was 7 percent more than the same period last year. Efficiency also keeps rapidly increasing as the average number of pigs per litter for this quarter was 8.70 pigs compared to 8.57 pigs for the same 1996 quarter. However, this efficiency is not spread across all operations -- for operations less than 100 head, the average pigs per litter were only 7.50 pigs, while those with more than 2,000 head averaged 8.90 pigs. An important point is that not all smaller/ mid-sized producers are inefficient; in fact, this state has some independent operations that are just as efficient as any large unit but there are not enough of this type.

The shift in the swine herd away from the packing facilities is causing long-term adjustments. In other words, the U.S. packing industry is located primarily in the Midwest. However, the hogs are tending to move away from this area. Based on the latest Hogs and Pigs Report of the largest 17 states, some gaining states are: AR, KS, MN, NC, and OK. Declining states are: GA, IL, IN, IA, KY, MI, MO, NE, OH, PA, SD, and WI. Generally, the other 33 states are also declining with exceptions, such as UT, CO, WY, and AZ, where integrators have located.

As Dr. Kelly Zering of NC State points out: "A severe packing capacity shortage has developed in the southeast. North Carolina, Virginia, South Carolina, and Georgia have enough surplus pigs to supply a 16,000 head per day slaughter plant (four million per year) . . . " This is part of the reason a group of producers centered in Georgia are exploring a new slaughter facility.

The flip side of this is the surplus packing capacity in the Midwest. This also means that the Midwest packers are paying premiums to keep supplies in line with capacity. This is coupled with the fact that the southeast has become less dependent upon local grain supplies and generally now pay transportation costs (in the range of $.40 - .60 per bushel) from the corn- belt. What does this mean for the future of the southeast industry (not considering regulations)? At least one large regional entity is starting to produce feeder pigs locally and ship them to the Midwest for finishing. It appears this will be an increasing future trend.

From a long range perspective, the future of production depends on several factors. First, the uncertain/changing state (and local) regulatory situation will be a major force in determining where hogs will be produced, size of individual operations, cost of production, environmental characteristics, and, associated industries such as packing, rendering, etc. As an example, North Carolina now has a moratorium on new operations through March 1999. Second, it strongly appears the "true independent operation" will have survival problems. This does not mean there will be no more independents but they will look different. Given the southeast where most grain is imported with volume shipping discounts, long-term packer contracts (partially based on volume), and, a loss of market power for small units both on the supply and product sides, producers must change their way of doing business. This leaves two dominant types of producers outside (or within) the very large units -- those with contracts and those as part of one or more networks. One unsolved issue is the regulatory restrictions on size of operation. This could ultimately change the trend toward the super large units that have grown so rapidly.

For the immediate future, we can expect large increases in 1998 production. With the current grain prices and excellent opportunity to forward price this fall, we will also probably see average slaughter weights increasing in 1998. At this time, this appears somewhat like the 1988 and 1992 situation when we had increases of this magnitude. If market hog prices react in a similar manner, then we can expect 1998 S.C. prices to average in the mid-to-low $40 per cwt.

with a possible downturn below the $40 level next fall. For producers, now is the time to use the sharp pencil (evaluate production, reduce costs, forward price, network, etc.) rather than a large eraser later.

THE CLEMSON UNIVERSITY COOPERATIVE EXTENSION SERVICE OFFERS ITS PROGRAMS TO PEOPLE OF ALL AGES, REGARDLESS OF RACE, COLOR, SEX, RELIGION, NATIONAL ORIGIN, OR HANDICAP AND IS AN EQUAL OPPORTUNITY EMPLOYER.
COOPERATIVE EXTENSION WORK IN AGRICULTURE AND HOME ECONOMICS--STATE OF SOUTH CAROLINA, CLEMSON UNIVERSITY, U.S. DEPARTMENT OF AGRICULTURE, AND SOUTH CAROLINA COUNTIES COOPERATING.

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updated 11/04/97