Tears streamed down Ken McLaughlin's face as he loaded 26 sows for market the week before Christmas. Normally, selling sows would be a simple, logical business decision for him. No big deal. Certainly nothing to be upset about.
But that Dec. 17 sale was different. It amplified McLaughlin's feelings of frustration and hopelessness over the miserable state of the pork industry and how it was affecting his family.
Record high production at the farm level, complicated by inadequate shackle space nationwide, had driven live hog prices to unfathomable depths, as low as $8/cwt.
As the holidays approached, McLaughlin and countless producers throughout the country were hurting badly. A lifetime of assets could be lost in a matter of weeks and people's spirits were battered and broken, perhaps irrevocably.
"We had to begin to stop the flow of red ink and Dec. 17 was the day," McLaughlin remembers.
In 1990, his dad loaned him 20 gilts and two boars to establish a farrow-to-finish herd, which grew to 80 sows by the following year. "I had such hope and enthusiasm when I started. Selling those animals in December was an insult to that hope," he says.
McLaughlin and his wife, Pam, have shared the pleasures and pitfalls of pork production for 13 years. They worked for a retiring farmer from 1986 through 1989. Then in 1990, they purchased a 244-acre farm of their own in Sigourney, IA. Their children, Amy, 15; Jon, 11; and Michael, 8; work alongside, through good times and bad.
McLaughlin says he's generally not a letter writer but soon after selling the batch of sows last December, he shared his feelings about the hog crisis in a poignant letter. His pastor asked for McLaughlin's permission to send it to The Catholic Messenger, a weekly newspaper read by 22,000 urban and rural subscribers in the diocese of Davenport, IA. The letter was published anonymously on Jan. 7 of this year.
"I do not write this seeking pity or help of any kind," McLaughlin's letter stated. "My wife and I have been through tougher ordeals than this and we have faith that we can handle this, also. I write in hopes of bringing a realness to what is happening to many farmers right now. The embarrassment of seeing the price of pork in the stores and knowing you're selling hogs at a loss is felt by many of us.
"I do not have the answer to this situation but I hope this brings it closer to home for everyone," the letter continued. "If someone, or all of us working together, can change this tough situation, I hope it happens soon for the many who are hurting. In the meantime, please extend a thought or a prayer toward those who are caught up in this situation and are losing hope."
In February, McLaughlin decided to sell his entire breeding herd. He expects to be out of the hog business by this September. "Until recently, hogs have always paid the bills," he explains. "Now they just cost too much."
McLaughlin plans to continue growing 150 acres of corn and 50 acres of soybeans for cash crops, while maintaining his 48-cow beef herd. He'll also continue with the part-time roofing job he started last August.
"We really enjoyed working with hogs and we feel badly that they won't be part of our lives anymore, at least for the foreseeable future," McLaughlin says.
A reserved, soft-spoken, private man, it took tremendous courage for McLaughlin to now openly share his personal sentiments with strangers.
"Even though they don't often express their feelings, many farmers connect with a spiritual side of farm work," says Sister Miriam Brown, executive director of the Churches' Center for Land and People (CCLP). "For them, it's the contemplative sense of working in unity with nature and raising their animals in a caring way."
The CCLP, established in 1989, is an ecumenical group that ministers to farmers and rural communities in the tri-state area of southwestern Wisconsin, northeastern Iowa and northwestern Illinois.
Brown believes it's that spiritual facet that makes the farm lifestyle so attractive to many. "A hog farm is not just a business, but a wonderful, important way of life. Ashog prices fall dramatically below production costs, that way of life deteriorates," she reflects. "Right now, many pork producers are experiencing the erosion of all they have ever worked and hoped for. It's a difficult time emotionally and financially."
Historic Setbacks "These are the most difficult times hog farmers have ever experienced," says Glenn Grimes, a University of Missouri ag economist. "This crisis is even bigger than any year during the Great Depression of the 1930's."
The culprit has two faces, lack of slaughter capacity compounded by more inelastic demand for live hogs, explains Grimes. In 1998, production increased 10%, while the price decreased an incredible 40%. "That's what did us in," he adds.
Grimes and his colleague, Ron Plain, estimate the 1998 industry-wide loss of equity at $2.5 billion. They project this year's loss at $1 billion or more.
"The magnitude of equity losses is manifested by total dollar loss and the rate at which it has occurred," adds John Lawrence, extension livestock economist with Iowa State University (ISU). "The losses have been industry-wide, including large operations and small. The situation is complicated with the tremendous changes taking place in the industry and the sense of uncertainty most people feel," he adds.
Steve Meyer, director of economics for the National Pork Producers Council, highlights another disturbing angle of the hog crisis: Many input suppliers are sitting in a precarious position, too. They are owed a lot of money by producers and are carrying a lot of debt.
Producer President Speaks Out Max Schmidt, president of the Iowa Pork Producers Association (IPPA), explains he has invested $1.5 million in the renovation of his Elma, IA, farrow-to-finish operation, having initiated major building projects every year since 1994.
Just since 1995, he has gone from 200 sows to 900. It seemed like the thing to do at the time because pork is the number one meat of choice throughout the world, Schmidt points out. "In 1998, pork was the only protein source in the U.S. that enjoyed a 5% increase in per-capita consumption," he adds.
Regardless, Schmidt says he took a $400,000 hit on the 14,323 hogs he sold on the open market (mostly to Swift) in 1998. "I was actually more worried about hog prices a year ago at this time than I was in December. I got so depressed that many days I had to struggle just to get out of bed," Schmidt relates.
Sadly, Schmidt can list a litany of pork producers who have been brutalized by the hog crisis. "One of my friends, a leader in the pork industry, recently declared bankruptcy. We embraced each other and cried together over this tragedy. He and his wife have no income, they have lost their livelihood and all they had worked for over 30 years. It's gut-wrenching," he says.
"I know some young pork producers that are cashing in their life insurance policies to feed their kids. If I have a feeling of failure right now, it's because, as a pork industry leader, I haven't been able to generate enough money through legislative channels to help young people stay in business," he confides.
"Producers do have each other. Many are hanging on, hoping things will turn around. Encouraging one another is the best thing we can do right now," Schmidt suggests.
He notes that IPPA recently formed a task force with the long-range goal of putting a greater percentage of consumers' dollars in producers' pockets.
For this immediate spring and summer, he's encouraged by the opportunity of more favorable prices offered on the futures of the Chicago Mercantile Exchange.
"There's the potential for at least a small amount of profit," Schmidt says.
On a personal level, how does Schmidt cope, even on the darkest days?
"I draw on my faith," he says. "If you have faith, you can make it. And if you don't make it, there's life after pork production. With every crisis, there's opportunity."
Hotlines Heat Up Margaret VanGinkel, coordinator for ISU Extension's Iowa Concern Hotline, reports that pork producers have been calling in increasing numbers. "From August 1998 through March 1999, we received 100 more calls per month, on average, than we did from August 1997 through March 1998," she says. The Iowa Concern Hotline is available for all citizens, not just farmers.
VanGinkel says from August 1997 through March 1998, 30-40% of the calls received were from farmers. However, from August 1998 through March 1999, 80% of the calls came from farmers, mostly pork producers.
"Last fall, many farm wives called for assistance," VanGinkel says. "They said, 'I know we've got a problem, but my husband won't talk about it.'
"In December and January, the men started calling. Or, wives called saying 'My husband finally said it was OK for me to call the hotline,' " she continues.
"We get a lot of calls from pork producers who feel isolated and believe they are the only ones in their predicament. But many others share their situation," VanGinkel emphasizes. "It's better for people to talk about their problems, rather than not do anything. We encourage pork producers in crisis to seek help, call a hotline or perhaps get mental health counseling."
"One of the main concerns we're hearing from pork producers is the terrible slump in processing capacity," says Paul Gunderson, director of the Marshfield Medical Research and Education Foundation.
The foundation houses the National Farm Medicine Center based in Marshfield, WI. The center has developed a roster of ag hotlines throughout the country.
"The stress caused by the ups and downs of hog prices takes an enormous toll on farm households," Gunderson continues. "When people call hotlines, they are not only looking for ways to make ends meet but also for help regarding little things like keeping their kids in extracurricular activities, such as school sports or even 4-H. It's very unsettling to the dynamic of family life when these activities are interrupted," Gunderson points out.
Plastic Crutches Gunderson says there is one astounding difference between the current hog crisis and the farm crisis of the 1980's, namely credit card debt. "Farm families have become very urbanized and are using credit cards to purchase necessities for their operations. It's not uncommon for pork producers to have credit card debts of $30,000 to $50,000," he reports. "Those are very expensive debts and with interest rates running as high as 24%, it's very hard for people to see the end of it, even with hog prices rising somewhat."
So what exactly can pork producers do to cope more effectively with excessive levels of stress that endanger personal morale and relationships with spouses, children, parents, siblings and friends?
"Share your feelings with persons you respect and trust. Seek business-related and personal advice from qualified professionals. Tap into community-based resources," reinforces Gunderson. "You are not alone. Link with other people who have walked your path. There are many sources to help you," he counsels.
Then he offers one additional, common-sense tidbit for coping with the financial crisis: Pick your coffee shops carefully.
"If the conversation at your favorite coffee shop focuses on doom and gloom, it's better to stay away," Gunderson advises. "Such talk is extremely detrimental to mental health. If you drink coffee with fellow producers, set limits on where the conversation will go."
Financial Daylight "I have been surprised at the resiliency of the pork producers we work with," says Tom Vincent, president of the Brenton Agri Access Division of Brenton Bank in Perry, IA. "Most have really 'hunkered down' and seem to possess a mindset of staying in the business, particularly in light of the fact that prospects for a somewhat improved hog market through the summer appear to be realistic.
"There is no doubt that times are tough and most producers' borrowing bases are tight," Vincent continues. "We have worked with others to extend principle payments on term notes, as well."
What's his advice for working more effectively with lenders?
"Having a business plan that encompasses the effects of the variability of income, both from a production and financial standpoint, will make discussions with your lender more objective and will allow your banker to become your advocate as he or she deals with a loan committee or an examiner," Vincent says.
Focus on realistic objectives that will have a positive effect on your cash flow. "Forgo capital purchases until the market is back and the equity that has been lost is replaced. And don't be afraid to seek the assistance of a financial advisor, such as a CPA or consultant," Vincent suggests.
"Get away from the farm on occasion. Visit with peers in the business and take advantage of educational opportunities, particularly relating to risk management or financial management seminars," he adds.
Eternal Optimist Focusing on the basic pleasures of farming is one producer's key to avoiding personal stress and financial despair.
"Our goal is to squeeze every buck we can out of the business but, above all, we enjoy the chase," says Jack Wyttenbach, a progressive Sauk City, WI, producer who's been in the hog business nearly 40 years.
Wyttenbach has built his farrow-to-finish operation to 1,000 breeding females and, starting this year, expects to market 18,000 hogs annually to Rochelle Foods.
Despite his easy-going approach, Wyttenbach is deeply committed to being a viable, long-term competitor in the pork industry, having invested about $1.5 million in his operation over the last five years.
In fact, he had $240,000 worth of improvements in the works when the market started to decline last year. "The financial situation has not affected our construction plans. There's been no slow-down because we do the work ourselves," Wyttenbach says.
Since the beginning of 1998, Wyttenbach has been tapping lines of credit to pay bills and cover operational costs. Still, he's quick to point out that they strive to keep the monetary gains and losses in perspective.
"We concentrate on what happens on our own farm and finding market access for our own future," Wyttenbach adds. "Hanging on is tough but the market situation can and will correct itself."
Tim Donlon has taken a proactive approach to the crisis, pursuing political avenues toward industry changes, including mandatory packer-to-producer price reporting. With his wife, Lisa, Donlon has operated a 200-sow, farrow-to-finish operation near Monona, IA, since 1986.
"We lost $50,000 last year and then we had to borrow $50,000 to keep going," Donlon says. "That has created a lot of stress and strain for our family. We plan to stay in business but don't know for how long because we're not sure what's going to happen in the industry.
"If pork producers keep speaking to their legislators, maybe they'll listen in time to help us survive this crisis," Donlon hopes. "The obstacles may seem insurmountable, but it's amazing how far you can go if you speak out."
Taking A "Time Out" "I'm a third generation pork producer and hogs have been my life for 48 years," says Jim Braun of Latimer, IA, who, until recently, operated a 650-sow, farrow-to-finish operation in total confinement.
At the end of 1997, anticipating a downward spiral in hog prices, Braun sold most of his breeding herd. He retained enough inventory to have 16 sows farrowing every two weeks through mid-February of this year. He expects to empty his finishing barn by the end of June.
"I sold 90% of my sows in one day," Braun relates. "It's one of the hardest decisions I've ever had to make but the last thing I wanted to happen was to farm until I went broke. I wanted to get out before disaster came.
"I plan to sit back a couple years and watch what happens in the industry," Braun says, explaining he doesn't rule out getting back in the hog business one day.
For now Braun plans to work with a University of Iowa professor on a research project focused on health and the rural environment.
He'll also accept speaking engagements on behalf of Friends of Rural America, an organization devoted to family farms, rural communities and the environment that he was instrumental in founding in 1995.
Niche Marketing Paul Gebhart is one pork producer who hasn't been devastated by the recent prices. That's because the pork business has been part of major diversification on his Edinburg, IL, farm.
In 1988, Gebhart started developing his land for organic farming. Presently, he has 460 certified organic acres (300 owned and 160 rented). With the help of his wife, Cindy, and three children, he grows corn, soybeans, small grains and hay.
In recent years, he maintained a small hog herd and farrowed only in the summer. Gilts were sold after their first litter. He sold about 400 market hogs annually.
Last January, Gebhart and another pork producer (who lives 10 miles away) decided to collaborate on an organic pork enterprise. By this fall, they hope to grow to 80 sows.
Pigs will be raised in hoop structures, using the Swedish deep-bedding system. They'll sell pork direct to consumers, based on pre-arranged contracts, marketing about 1,000 head annually. They expect to make 50% above regular retail prices, on the average.
"If you can add value to your product, you're in the driver's seat and all of the profit is in your pocket," Gebhart believes.
Marion Howard is one tenacious pork producer who subscribes to the "if you can't beat 'em, join 'em" philosophy.
Howard has operated as an independent producer in Jacksonville, NC, since 1965, with current holdings of 400 acres. In recent years, he's been selling 10,000 market hogs annually to Lundy Packing Co., Clinton, NC.
His 500-sow, farrow-to-finish operation is regarded as one of the most exemplary and financially successful hog farms in the Tarheel state. Despite his enviable record, Howard struggled through the 1998 Christmas holidays in the same financial boat as most of his peers in this country.
"I lost money throughout 1998 but by Dec. 1, I was losing $10,000 a week or more. It was devastating," Howard says. "I lost so much money that all of the assets I had worked for my whole life were washing away. All of my farms and buildings are paid for, and I'm not leveraged, but I had to borrow money to stay in business."
Howard decided it would be crazy to lose all of his assets, so on Dec. 17 he figured it would be best to get out the hog business. He slept on the decision.
On Friday, Dec. 18, he woke up wondering if some vertical integrator would like to have him as a grower. He sought the advice of a friend who's involved in the industry, did some networking and carefully considered several companies.
"You shouldn't jump into bed with the first person who comes along," Howard points out. "It's best to look at the alternatives and make certain the person you get in bed with is going to be there for a long term commitment."
Shortly after the first of the year, he struck a deal with Brown's of Carolina. Brown's will own all of the hogs Howard raises and provide all of the feed and supplies.
Howard is now in the process of liquidating his own herd and renovating his facilities. He expects to complete the work by the end of this summer. His farrow-to-finish buildings at the homeplace are being converted to a farrow-to-wean set-up.
Two new finishing barns will be constructed at another site where he already has two finishing barns. When complete, these four buildings will accommodate 3,400 hogs. (Howard had the state-required waste management plan approved for projected expansion and had been granted the necessary permits before the North Carolina moratorium took effect, thus allowing him to build.)
Howard is energized by his decision, even after 34 years as an independent. "The pig business has been good to me over the years, but times have changed and big companies are running the show," he says.
"They have ties with the packers and that's what you've got to have to survive in this business. If I had been with an integrator last year, I wouldn't have lost money," Howard asserts, naming several fellow independent pork producers in North Carolina that have recently taken the plunge into contracting.
"After I thought it through, and considered what the future holds for independents, I couldn't see going on alone any more," he continues. "If you're going to be a player, you've got to have security from somebody to profit. There's no security for independents any more."
Now, Howard says, he'll be guaranteed a positive cash flow and a pretty good net return. Ironically, while other producers are going out of business, he will increase the herd from his usual 500 sows to 1,200. He expects to produce over 20,000 market hogs annually. What's more, he won't be laying off employees but rather hiring two more.
"I feel great about my decision," Howard says. "I told Brown's that we're going to do a good job for them."
While some people might accuse Howard of siding with the "big guys," he doesn't see it that way. "If it was just me I had to worry about it, I would get out of the hog business completely. But my son graduated from college two years ago and he wants a career on the farm. And I have two loyal employees that have been with me for a long time, 18 years and 7 years, respectively. We talked about the options and together we realized that what we are doing is best for all of us," Howard relates.
"You've got to accept the changes in the pork industry and if you can't do that, you're fighting an up-stream battle," Howard emphasizes. "I can't see fighting. You've got to keep an open mind to survive in today's world of pork production."
Here's what the producer association presidents of the top 10 pork states* say about crisis impacts:
No. 10, Kansas: "While everyone's situation varies, our people are very strong and will face what comes. We don't like the direction the industry is taking, but we hope we can weather the storm and be here tomorrow." - Steven Cox
No. 9, Oklahoma: "The low prices we've continued to see since December have accelerated the rate of change within the structure of the pork industry. Production is 95% corporate-owned here, so we're much closer to total integration than other states are." - Robin Friedrichs
No. 8, Ohio: "Our state has a large number of small to mid-size producers. While some have chosen to, or have been forced to, exit the industry, those remaining are cautiously optimistic about the return to profitable returns in the second half of 1999 and into 2000." - Bryan Black
No. 7, Missouri: "Our pork producers are hopeful that the hog cycle will hold true, that is, that a price peak will be coming soon to provide a positive cash flow to their operations. However, there is guarded optimism as the predicted peak gets pushed back further in the year. Smaller pork producers with diversified operations are facing a denial of credit due to bleak outlook for grain prices coupled with a carry-over loss from their pork enterprises." - Jim Guest
No. 6, Nebraska: "Equity losses by our producers have caused some to exit, while others are restructuring to try to cope and stay in business. Caution is the key word, while we wait to see if there is going to be a place for independent producers." - Stan Rosendahl
No. 5, Indiana: "Our producers are restructuring debt, facilities, production contracts and/or marketing contracts. This is new ground and people are apprehensive about the dramatic changes taking place in the industry but they are open to opportunities to concentrate on specific aspects of production." - David Hoar
No. 4, Illinois: "In our state, very few producers are cutting back or getting out of pork production. In 1998, consumers spent 11% of their disposable income on food, which is half of what they spent 14 years ago. If the government doesn't change their cheap food policies, our elected officials better have plans to help all agricultural producers with some type of cash payments." - Rich Brauer
No. 3, Minnesota: "The producers still in business have steely determination to tough it out until the upswing comes." - Randy Spronk
No. 2, North Carolina: "Producers in this state remain quite anxious about the future, not only with regard to continued low prices and limited market access, but also out of concern that additional, costly state-mandated regulations are looming. While many of us need a return to profitability very soon to ensure our survival, we also need a reprieve from any additional financial burdens created by more legislative and regulatory mandates." - Deborah Johnson
No. 1, Iowa: "There's a world of hurt among our pork producers and we've got a long road ahead of us. I don't look for things to turn around anytime soon." - Max Schmidt
*Ranking based on total market hogs sold in 1998. Source: National Pork Board.
National Farmers Union (877) 466-2277 National Family Farm Coalition (800) 639-FARM (3276) National Domestic Violence Hotline (800) 799-7233 North Dakota Mental Health Association Help-Line (800) 472-2911 Farmers Legal Action Group (651) 223-5400 National Farmers Organization (ask for livestock department) (800) 247-2110 Fellowship Of Christian Farmers (309) 365-8710 National Catholic Rural Life Conf. (515) 270-2634 Safety Net Prayer Ministry (319) 252-3380 Idaho Agricultural Resources Hotline (877) 862-5870 Farm Resource Center (serves Illinois and West Virginia) (800) 851-4719 Farm Counseling Project-Indiana (800) 545-2296 Iowa Concern Hotline *(800) 447-1985 Kansas Agricultural Mediation And Farmers' Assistance Program *(800) 321-3276 Massachusetts-FarmNet Of The Pioneer Valley (MA only) *(800) 327-6002 Minnesota Department Of Agriculture Hotline *(800) 967-2474 Nebraska Ag Mediation Service *(800) 446-4071 Nebraska Farm Hotline *(800) 464-0258 New York FarmNet *(800) 547-3276 New York AgResolve *(800) 547-3276 North Dakota Farm Credit Counseling (ND only) *(800) 694-4336 Oklahoma Agriculture Mediation Program *(800) 248-5465 Farm Crisis Program (serves South Dakota, SW Minnesota and NE Iowa) *(800) 691-4336 South Dakota Ag Finance Counseling (SD only) *(800) 228-5254 Wisconsin Farm Center *(800) 942-2474
For a list of 249 state and national help resources, contact: --Independent Television Service --(415) 356-8383, ext. 221 --E-mail: [email protected] --Internet: www.itvs.org
To voice your concerns: Vice President Al Gore's office --(202) 456-2326, E-mail: vice.presi [email protected] Secretary of Agriculture Dan Glickman's office --(202) 720-3631 --E-mail: [email protected]