Steve Meyer doesn’t mince words when he compares the 1998 hog crisis to 2023.

“I’ve felt like Dr. Doom the last few months,” said Meyer, lead economist for Partners for Production Agriculture, who’s spent his career studying hog markets. “Our model says that we’re gonna lose, on average, more money per head in 2023 than we did in 1998.”

Meyer was measured as he advised producers at the Illinois Pork Expo last week. “Things are looking better, but not good. The question is: Will things get better enough to get you in the black?”

The good news: Input costs are lower and may get lower still, wholesale demand is stronger, consumer-level demand has recovered a little, and herd health is sharply improved.

“Restoring profitability will require lower costs and/or higher demand and/or lower pork supplies to push prices up,” Meyer said.

Prairie Farmer sat down with Meyer for a closer look at how 2023 compares to 1998:

Can you remind us how bad 1998 was? 1998 was a horrible year in the pork industry. We had hog prices that got down into the single digits in late November, early December that year — and huge losses and a massive restructuring of the business.

What created the restructuring? Going into 1998, the structure of the business was changing: change of technology, of economies, of scale. We had a large number of generally smaller, part-time operations where there wasn’t specialization. The industry was discovering that larger, more specialized units could have lower costs and be a lot more effective. So when 1998 hit, we had a massive restructuring of the business. And it was very, very, very painful.

Saying 2023 is worse than 1998 is pretty significant. Our model says that we’re gonna lose, on average, more money per head in 2023 than we did in 1998. But it doesn’t have the same implications.

Why not? This is a different business. Generally, we have larger, better capitalized businesses. There’s certainly economic stress on a lot of people, but we’re coming off a period when we had pretty good accumulation of equity. So, producers going into this could stand some losses.

But boy, those losses in the first half of 2023 were due mainly to high, high costs. They were very, very difficult. And so that’s put us in a position where 2024 needs to be better. At one time it didn’t look like it was gonna be a lot better, but it’s certainly been trending better as we’ve gone through the winter months.

The ’98 hog crisis pushed a lot of Illinois producers out of the hog business. What’s going to be different this time? We have producers who are much more aggressive in managing risk in 2023. The model I have that shows 2023 as bad as 1998 assumes hand-to-mouth purchase of corn and soybean meal, and sale of hogs on the market without any risk management. But now people use futures and options more than they used to. We’ve got LRP (Livestock Risk Protection) insurance and we’ve got LGM (Livestock Gross Margin) insurance. We’ve got a number of tools that people have used, and that’s one of the reasons we haven’t seen the bankruptcies and liquidations that we saw in ’98.

So better risk management and better balance sheets coming in? Yes, I think we had a better job of that done. Just a different set of tools available and a different mindset of the producers. And obviously, the shift to contract production has insulated those who don’t own pigs. They don’t have market risk, but the market risk for the pig owners is still great.

What’s your best advice to hog producers at this point? It’s a good time to play defense. There are times in this business when you can play offense, you can take risks, you can look at the cash markets and say, ‘That’s gonna reward me for taking the risk.’ I don’t think that’s the case now. Most producers have had a big enough hit to their equity that they can’t stand a lot of risk. And so they probably need to be at least as aggressive on risk management now as they have been in ’23.

There are still some good opportunities out there. You can use options to put in a floor under price and leave the top side open. You can use LRP insurance to do the same thing. On the grain side, markets are trending toward lower costs.

What does a corn farmer need to know about the hog market? The corn producer needs to know that we can’t pay those kind of prices forever. In my opinion, they’re going to have corn prices that are much closer to their cost of production over the next couple of years. You know, we always produce our way out of prosperity.