Summer is usually a profitable time for America’s hog producers but this year swine flu, recession and high feed prices have even the largest farmers operating deep in the red and some smaller ones on the brink of bankruptcy.
Before things get better, the weakest are expected to fail and even those who survive will need years to recover from the debts they have amassed during this lean time.
Hog prices normally rise and turn profitable in the spring and early summer because of seasonal declines in numbers. That did not happen this year because corn prices remain high and demand for pork has slumped.
Pork sales have slowed as the recession has penny-pinching consumers eating out less and buying lower-cost items such as hotdogs and lunch meat.
Swine flu also hurt. Even though the virus is spread by humans and not by hogs or pork, the outbreak caused a noticeable drop in pork sales because of consumer fears, economists said.
Longtime agriculture economist Glenn Grimes said the industry’s financial problems are the worst he has seen in his nearly 60 years in the business.
Smithfield Foods Inc., the largest hog producer in the world, reported its first fiscal year loss in more than 30 years and predicted its hogs will lose money for another six months. It already cut its herd 10 per cent and has said it will cut it another three per cent.
Producers know the herd needs to shrink. A group of producers tried this spring to raise $50 million to be used to reduce the herd, but that attempt failed due to lack of participation. They would have used the money to buy sows and slaughter them, thus reducing the breeding stock.
HIGH CORN PRICES HURT
In 2008, corn prices climbed to nearly $8 per bushel, pushed up by a combination of demand from ethanol makers and Wall Street investors pouring money into commodities. While the $8 corn did not last, $4 corn remains, which is much higher than the $2 to $2.50 that producers are used to paying.
The $4 corn is harmful because hog producers cannot raise hog prices enough to cover the higher-priced feed. Hog prices this year are down about 20 per cent from a year ago and wholesale pork prices are down 28 per cent.
“Our costs to grow these animals are about 10 cents a pound higher than when we had $2.50 corn,” John Prestage, senior vice-president of the family-owned Prestage Farms, told Reuters. “We have way too large of a (pork) supply to get 10 cents a pound more for hogs.”
North Carolina-based Prestage Farms will reduce its sow herd about five per cent this year. Because of breeding cycles it will be next year before that five per cent reduction will translate into fewer pigs and less pork.
In addition to shrinking herds, producers are pleading with bankers to maintain lines of credit. The latter has not been easy, because after more than a year of losses many farms have used up their credit and banks are demanding collateral before offering more.
“As a whole, the lending community is becoming increasingly concerned,” said Illinois hog farmer Eldon Gould.
For consumers, these hardships will mean higher-priced hams, pork chops and other pork next year because there will be fewer hogs and less pork.
“Consumers really have a bargain at the present time,” Grimes said of supermarket pork prices. “That is not going to last. The only way we can pay hog producers more is sell meat to consumers for more.”
Current corn and hog price forecasts indicate it will be June 2010 before hogs are profitable again, said Ron Plain, agricultural economist at the University of Missouri.
Prestage agrees and said that timeline could be particularly hard for new hog producers, who have secured debt to start their businesses.