Hog Procurement (Smithfield) Flashcards
Where are Smithfields largest farms located?
Midwest
Iowa, Nebraska, Missouri
What are Smithfields largest harvest plants?
- Tar Heel (largest)
- Sioux falls (2nd largest)
How many companies do they have?
9 harvest facilities, 40+ packaged meat facilities
T/F: Farrowing units are segregated from finishing units
True
Hog Procurement
What are the industry hot topics?
- Aftermath of Covid
- Labor
- Inflation
- Government transfers (money to population)
- Trade
- ASF: Skyscraper pig production?
- Disease: Big (PRRS 144–> depopulation of whole system)
- Demand/ Competing proteins: Pork, Chicken, Beef, Meat alternatives
- Prop 12: Supreme court (farm animal confinement)
- Russian/Ukraine situation: trade issues
What is the main issue that hog procurement is experiencing?
Inflation
Russian/Ukraine situation
Infrastructure costs and trade issues
Disease
PRRS 144 is worse than PED
What is Prop 12?
California state passed law
* To sell product to California, sows must have 24 sq. feet
* Can be in a gestation stall for a limited time?
* State regulated, not government
* Only applies to fresh pork
Question 3
Massachusetts law
Money is not the number one priority to stay, what is the main reason people stay?
Builds trust and good relationships with producers (trust is important), and culture
What is hog procurement?
Building relationships
* They build trust with their producers: “People stay due to trust, culture, and the way business is handled; not just money”
Negotiations
Supply forcast
* Annual, length of contract, market intelligence (health pressure, competition)
Scheduling
* Programs and segregations
Unloading and driving pigs
Animal welfare
Mandatory price reporting
What are producer reviews?
Conversations with producers that occur on a monthly basis.
* Data feed back vs. contract
* Carcass distribution and sorting (sorting can give producers premiums)
* Dead and Non-Ambulatory rate
* Arrival time adherence (within 30 mins or their expected arrival)
* IV levels: Iodine Value levels –> Pork belly quality
Producers receive a benchmark spread sheet to tell them where they fall
What does a high IV value mean?
High IV value translate to lower quality meat, makes it soft.
* 1: Soft, can be balled up like a dishrag
* 3: Normal, mostly holds shape when folded
* 5: Very-firm, almost like a 2x4 board
Price discovery
USDA cutout (Everyone wanted cutout as their blend only), Cash (National, Iowa Sourthen Minnesota, Western corn belt, Eastern corn belt), Chicago mercantile exchange if one market goes haywire, the other two markets should give stability. Diversity in pricing blends is important in hog procurement to keep stable pricing.
What affects the quality of fat?
- Oils/DDGs –> Softer fat
- Corn –> Normal
- Small grains –> Firmer fat
What is in a daily cutout?
- Determines what Smithfield sells their product for
- Gives an estimate of the value of pork carcasses and cuts
What happens to price discovery as the industry consolidates?
It will become increasingly hard to find adequate price discovery
What are the goals of USDA Cutout inclusion?
- Maintain diversity in pricing mechanisms
- Pricing tool to aid in managing fresh pork magins
What is preferred from a packer standpoint in terms of price discovery?
Blends and price discovery that promotes Fresh Pork Profitability
Pushing cutout
Index
Possibly CME cut out
Packer Avoid (front month future, floor, and ceiling pricing, heavy cash blends, flat basis)
Producer Preferred (Depends on the area, cutout, over index pricing, front month future ( especially for producers that Hodge))
Producers avoid (heavy cash)
What do producers want to avoid in terms of price discovery?
Heavy cash
What do they have a 13 week forcast?
13 weeks represents being a quarter ahead
* Can stay on top of ebbs and flows of the market
A bell curve of the market moving down in those months?
higher pig supply, less disease
