November 19, 2009
As of noon on Friday the 13th of November, pork producers had lost more money than they lost in the pork price disaster of 1998-99, said Ron Plain, University of Missouri Extension livestock economist.
“Hog farmers are losing more money than they did in what they thought was a once-a-lifetime crunch just a decade ago,” Plain said. He spoke at the annual Swine Institute held in Columbia by the Missouri Pork Association and the MU Commercial Agriculture team.
“From October 2007 to October 2009 the average hog was marketed at a loss of $19.18 per head,” Plain said. Farmers lost money raising hogs in 23 of the last 25 months.
“In the last 25 months through October, hog producers lost $4.6 billion,” he said. The 1998-99 disaster lasted 27 months and claimed $4.75 billion in hog-farm equity. Losses in the current crisis topped that number Nov. 13.
Plain’s outlook for 2010 offered little optimism. Live-hog prices next year will average in the range of $43-47 per hundredweight. That’s based on the Iowa-Minnesota negotiated live-hog base price. That outlook is up $3-6 from 2009.
However, the cost of producing 100 pounds of pork now averages $52. Last summer, when corn prices were higher, the cost of production ran $62.
High feed costs, world recession and a glut of pork makes this price crunch severe, Plain said. In the 1998-99 price crisis, an over-production of hogs sent prices below a dime a pound.
This time farmers face moderately low market prices but record-high production costs.
The hog-farm price squeeze is likely to get worse before it gets better. “Bankers will begin forcing the issue,” Plain said. “Under their financial rules, bankers don’t have much wiggle room. They will not be renewing many hog loans.”
Farmers are a victim of their own efficiencies. As they sent more sows to slaughter, the pounds of pork continued to increase. Production per sow is up 3.5 percent this year, Plain said.
Weak consumer demand just adds to the pork producers’ problems. “We are in a recession that has lasted longer than the Great Depression,” Plain said. “Weak demand is felt not only in the U.S. but worldwide.”
About 20 percent of the U.S. pork goes for export.
Adding to the drop in demand has been a mislabeling of the H1N1 flu as “swine flu.” The non-swine flu cost producers an estimated $6 per hundredweight, Plain said. China, a large buyer of U.S. pork, banned imports on first reports of “swine flu.”
“Recent trade talk indicates China will lift that ban,” Plain said. However, resuming trade will not be enough to lift prices to profitable levels.
Year in, year out for 80 years, pork grown in the United States increased 1.5 percent per year. There were fluctuations, but the trend line was steady, Plain said.
The dilemma of too many pigs and not enough buyers will be solved only one way, Plain said. “Farmers must cut production 15 percent from the peak for prices to return to break-even.”
Farmers have sent sows to slaughter; however, they kept more replacement gilts, defeating the potential cut in pork.
Since voluntary reductions have not met the need, it may be up to bankers to turn the tide. “Hog farms will be going out of business,” Plain said. “Then production will drop and prices will begin to return.”
A new survey shows the top 25 sow operations in the country have reduced by 6.5 percent, almost twice the national average cut of 3.4 percent. Smithfield, the largest U.S. pork producer, cut 9 percent, Plain said.
Even a cool summer hurt farmers’ plans to cut pork production.
During hot summers hogs go to market at lighter weights because of lower feed efficiency. “This summer, cool weather proved good for pig growth,” Plain said. “On average, market hogs were 6 pounds heavier than a year ago.”
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