It moved into hog production in a big way, and Tyson Foods Inc. is
pulling out in a big way.
The hog production and food processing giant’s announcement that it is
shedding 30,000 sows from its owned and contracted herd shows that the
price cycle affects big companies just like it does independent
producers, said University of Missouri agricultural economist Ron Plain.
This sudden downsizing also reveals a key flaw in hog production
contracts that may afflict many big corporate interests, he added.
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“Tyson finally said those facilities are just getting older and older
and the outlook in the next year isn’t very good because of rising feed
costs, so now is the time to do it,” Plain said.
Tyson owns about 100,000 sows on company and contracted hog farms. The
30,000 sows being cut out of the herd by March 2003 are in 20-year-old
facilities. The 159 operations suffer from obsolete design and decaying
efficiency.
“The performance of the hogs in those facilities isn’t very good,”
Plain said.
Tyson’s problems aren’t confined to barns it owns.
Because of the way Tyson has designed its contracts, contract growers
supply buildings and labour, while Tyson owns the hogs, supplies the
feed and covers veterinary and other production costs. This means that
Tyson, and not the contract growers, are hurt by declining feed
conversion rates, low rates of gain and low pigs-per-sow rates.
“Tyson owns the hogs so whatever performance problems occur are Tyson’s
problem,” Plain said.
Tyson tried for about two years to sell the facilities it owns, Plain
said, but couldn’t find buyers because they were running down and no
one wanted to take on short-term investments that would have to be shut
down eventually.
Manitoba Agriculture hog market analyst Janet Honey said Tyson also
bore the expense of shipping pigs from these obsolete barns, mostly in
Arkansas and Oklahoma, into the Midwest for slaughter in its
company-owned IBP plants.
Plain said he expects other large corporate hog producers to suffer
from the same problem with declining performance in contract barns.
“I’m sort of surprised that they’ve never really dealt with the fact
that these things aren’t going to last forever,” Plain said.
“There needs to be a realization that at some point in time the
building’s life is up and these contracts need to end.”
Tyson has set aside $30 million to shut down its barns and pay off
contract growers.
Honey said the sow reduction will help cut excess pig supplies a year
from now.
“In the long term, if it’s really a reduction of 30,000 sows, it’s
going to have a positive impact,” Honey said.
The large sow reduction comes when the sow herd tends to constrict
during a traditional hog cycle.
Before the 1998 hog market crash, some observers confidently predicted
the hog cycle would disappear because big corporate producers had taken
over such a large share of production and would not vary their
production levels in reaction to prices.
But 1998 showed the cycle to be alive and the next downturn has come at
the 3.5 to four year point that could have been predicted. Tyson’s herd
reduction isn’t a lot different from how independent producers with old
facilities have always reacted.
“1968 was the first time I remember someone saying the hog cycle was
going to go away,” said Plain.”They may end up being right, but it sure
hasn’t happened yet.”
