Competition Its Not Just "Cost of Production

2002 University of Nebraska-Lincoln Extension Swine Report. Pork producers are faced with numerous competitive challenges. Having a higher cost of production than other pork producers has always been a reason to exit the pork industry. Even when their cost of production is competitive, producers still choose to exit the industry. Hog prices, corn prices and the hog/corn ratio from 1970 to 2000 were examined in relation to the change in the number of pork producers in Nebraska to identify the degree of influence that each had on producers decisions to enter or exit pork production. The annual average price of market hogs per cwt and the price of corn had little relationship to the number of pork producers in the state. (r2 <0.1). The hog/corn ratio (the average market price of hogs per annum divided by the average market price of corn per annum) had a slightly stronger relationship (r2 = 0.16). The data were further divided into five, six-year groups and analyzed. The relationship between hog/corn ratio and number of pork producers in the state was much stronger in the 1970s and early 1980s (r2 = 0 .63 to 0.68). The relationship weakened dramatically in the late 1980s and the 1990s (r2 = 0.08 to 0.0005). This suggests factors other than profitability as defined by the hog/corn ratio, are exerting more influence on the decision to remain in pork production now than in the past. New challenges in the industry, such as labor relations, contract negotiations and dealing with regulatory agencies all require a degree of people skills not previously required to be successful in pork production. The new challenges often require different skills and carry different risk. A competitive cost of production is necessary to remain in business, but it has a reduced influence on the decision to continue in production.