July 20, 2001

Consumer Products Prompt Changes in Pork Production Contracts

Retailers’ demand for fresh pork cuts and consumers’ demand for pre-cooked pork items has pork processors re-assessing the kinds of hogs they’ll buy. That’s going to mean changes for pork producers who may lose markets if they don’t keep pace, according to a North Dakota State University swine specialist.

"The status of producer-packer relationships may change considerably over the next few years," says Thomas Socha of the NDSU Extension Service. "Specifications in hog production contracts are going to be rewritten to assure that packers have the kinds of products that producers want. Producers may need to enter into long-term relationships with packers in order to reap the benefits of contracts. Contracts are not what they once were in terms of ‘you produce the pigs and we’ll slaughter them.’ Under these contracts, if your pigs don’t meet the specifications, packers just won’t take them."

In North Dakota, between 70 and 75 percent of hogs are produced under packer-producer contracts, Socha estimates. Nationally, only 17 percent of hogs are sold on open or spot markets. He says industry experts predict that number will drop to 10 percent or less in the next 5 years.

What’s driving the change? Pork retailers are expecting more uniformity in pork products. They want to offer consumers pork cuts that are identical in size, leanness and color each time they buy. Many products now carry processor names, so the link between customer acceptance and the processor is clear.

As a result, pork processors want to purchase hogs that produce the consistent cuts that consumers are coming to expect. Consistent size is particularly important when it comes to the loin eye. Consistency in intramuscular fat is also critical.

"Producers need to know that while consistency is a key, standards will not be consistent from packer to packer," Socha says. "Producers need to know the qualities of their hogs and work with packers whose standards most closely match their hogs."

Carcass identification systems now allow some producers to obtain information on the retail meat quality of their hogs. "That gives them excellent information on individual pigs," Socha says. "And packers are willing to provide more information to the producers about their hogs and that can assist producers in making changes in their operations to provide the most desirable animals for the packer."

Meeting contract specifications for some producers may be as simple as adjustments in the feeding regime or more frequent and selective sorting and marketing of hogs. Other producers may have to change their breeding programs.

"In some cases that may not be enough," Socha says. "Packers are compiling data from various genetic sources and nutritional programs. In the future, the packers may suggest genetics and nutritional programs that they feel produce desirable carcasses for their marketing needs."

Socha says producers need to remember that a contract doesn’t automatically assure the highest price. All packers have a grid payment based upon percent lean and carcass weight. "Producers need to study the payment grids of each packer to determine maximum profitability. Today, most packers offer the best price per pound for pigs with 55 to 56 percent lean and carcass weights from 175 to 210 pounds."

Discounts or rejections of pigs above or below the desired weight range, called sort loss, can be very costly to producers, Socha notes. In addition to production specifications, producers need to review the sort loss potential for each packer’s contract as well.

###

Source: Tom Socha, (701) 231-6565, tsocha@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu

Click here to download an Audio clip to accompany this story. (518KB wav file)