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Down, But Not Out

Despite fighting Porcine Reproductive and Respiratory Syndrome (PRRS), breeding sows in outside lots in manure sometimes up to his knees and a family who has grown tired of sinking money into a losing enterprise, Don Struthers still wants to raise hogs."I love my sows and I want to keep them," says Struthers, 55, who has raised hogs all his life at Collins, IA, northeast of Des Moines.Repositioning

Despite fighting Porcine Reproductive and Respiratory Syndrome (PRRS), breeding sows in outside lots in manure sometimes up to his knees and a family who has grown tired of sinking money into a losing enterprise, Don Struthers still wants to raise hogs.

"I love my sows and I want to keep them," says Struthers, 55, who has raised hogs all his life at Collins, IA, northeast of Des Moines.

Repositioning Backfires About a year and a half ago, Struthers started to look at repositioning his farrow-to-finish operation. Iowa State University specialists advised Struthers and his family to expand the operation to make better use of farrowing crates and improve building throughput. He needed to move to farrowing 38 sows/week, which meant expanding from 675 to 700 sows to nearly 1,000 sows.

He started the project last October, converting some finishing barns to additional gestation housing. The project continued toward its goal of reaching 1,000 sows by December 1999, until it was recently halted due to financial pressures.

Last October, the expansion project seemed like a wise move - buying replacement females and expanding when the market is low. Like many producers, Struthers figured prices wouldn't sink below $20/cwt. He anticipated that prices would rebound in early 1999 when he would start to recover part of his investment.

"I always used the idea that borrowing money is like anything else. It's just an input and if I borrow at 10% and it makes me 11% or more, it is a good investment," says Struthers. Problem is, borrowing money last year turned out to be a bad investment because there have been no positive returns to be gained from it.

In fact, the assumption that prices would take care of the cost of expansion has backfired for a number of the nation's pork producers who are now in financial jeopardy. Prices have wallowed in the $20s and low $30s through winter and well into spring.

Struthers tried to wait out the low prices by slowing down gains, feeding lower protein rations and feeding to heavier weights, in anticipation of higher prices. But prices stagnated well below profitable levels.

Meanwhile, expansion plans called for adding 250 sows. Struthers explains that every time you add one sow, it costs about $1,000 in cash flow by the time you figure in the cost of a replacement gilt ($150) and raising that gilt to be a productive mother ($100). Then if she farrows eight pigs, it takes about $100 each ($800 total) to take those pigs to market. That brings the investment to roughly $1,000/sow ($1,000 x 250 sows = $250,000).

For his part, Struthers had to switch from his small, local bank to a larger "chain bank" a year and a half ago that could continue handling his debt and to finance the $250,000 expansion.

As it happens, an 80-acre tract of land adjacent to the hog operation became available at the same time, ideally suited to handle the additional hog manure from the herd expansion. Don borrowed on the land to make that purchase, too.

Hog Bail-Out Falls Short Struthers knew he was adding to debt in a depressed market. But he assumed the hogs would bail him out like they always had. "I believe in cycles and I believed that we had hit the cycle lows in October, and then all heck broke lose in December," he remembers. Still, he averaged $34/cwt. for 1998, close to the average of the producer group on the Iowa State Swine Enterprise Records Program.

That wasn't enough to turn a profit. The Struthers' family farm corporation sold about 10,000 hogs last year. "Economists suggest with last year's prices, most producers averaged a loss of about $20/head (based on covering overall expenses). For us, that's a loss of $200,000. Add that to the $250,000 we borrowed for expansion and the $300,000 that I spent buying additional land, it has really put us in a bind.

"There are no ifs, ands or buts about it, I owe $750,000," declares Struthers. "But I am still a millionaire asset-wise." He estimates he lost $250,000 in equity last year alone.

Trying To Save The Farm The challenge is what to do next. He told the banker he couldn't make his first farm payment (under the new loan). The banker said to just make the interest payment. Struthers told him that wouldn't be possible either.

The bank then added $50,000 to his loan to tide him over using a so-called "second mortgage security agreement" on his land assets. That day, recalls Struthers, the whole family sat in the farmhouse in tears and discouragement. The children said "Dad, maybe we better sell the sows. We are getting tired of them beating us around." That same day, Struthers cancelled a boar semen order and sold off that week's weaned sows.

In the wake of the financial development with the bank, Struthers is just trying to hold things together at 800 sows, just trying to make ends meet, just trying to somehow come up with the cash to feed his hogs and his family.

Selling cull breeding stock hasn't helped much. It makes him sick to sell mature breeding stock for slaughter for less than $100/head. During the depths of the '98 price crisis in December, Struthers sold one load of market hogs for $14/cwt. He turned down a buying price of $12/cwt. He recalls somewhat wistfully on Memorial Day last year he sold hogs for $47/cwt.

In the past, Struthers has pulled equity from land to make ends meet. Struthers, his wife, Sharon and his two sons, David, 31, and Dan, 26, farm 800 acres. The two sons, a daughter and two daughters-in-law say they will continue to help Struthers with the hog operation. But they also tell him they could get good off-farm jobs, and maybe, it's time for Struthers to consider pulling the plug on the hogs. They urge him to stop pulling equity off land to subsidize the hogs.

At least, says Struthers, the farm isn't saddled with a lot of existing building debt. There are 13 newer hoop buildings, ranging in age from 7 months to 3 years old. The rest are older facilities that the family has remodeled themselves to save money.

One prominent sign that things are bad is the added debt incurred last year added $5/cwt. to the farm's breakeven to raise hogs.

All in all, these are troubling times for Struthers and family. Struthers chokes up with emotion and shame - for something he didn't cause and for prices which no one came close to predicting and which now jeopardizes the viability of his hog operation.

He remembers the mid-'80s and how bad they were for agriculture. The latest losses probably set his equity position back to the levels of those times. "I am worth more than I was back then. But what am I going to do with all this old hog and farm equipment if I don't use it? It's not worth much to sell off for cash."

Pride, Determination Despite being allergic to hog dust, stressed out (which has resulted in high blood pressure problems for which he takes medicine), persistently tired from lack of sleep and depressed from lack of profits to pay the bills, Struthers carries on.

He is a proud hogman and still wants to be the main provider for the family. He keeps working the long hours, trying to find new ways to chip away at the 36-37 cents out-of-pocket breakeven costs. He takes the extra hour to repair feeders and gates that need to be replaced - but for which there is no money.

Despite all the headaches, Struthers doesn't want to give up. In his view, central Iowa is one of the best places in the world to raise hogs. The ground is fertile and there are seven packing plants within 100 miles or so in every direction. And, he believes, the family makes a perfect working team.

But without profits, working at the hog farm is fast becoming a bittersweet experience for Struthers and his family.

Checking The Options Also, Struthers has investigated lots of options: getting production/financial help from a feed company; custom feeding for a large integrated company; cutting back sow numbers (bumping sow culling rates from 3-5% to 25% and not adding any replacement females to the herd is actually being done); just raising early weaned pigs, and even letting the hog buildings sit empty. Struthers figures you'd lose less money with empty barns but you'd still have to spend some for upkeep and insurance and you'd miss any potential profit peaks.

Holding Onto A Dream Many a sleepless night hasn't resulted in a solution. But he says the Lord has given him strength, and he believes that whomever controls the sows, controls the industry.

"I am doing what I love and I don't want to give it up, and I don't have to yet.

"And, I don't want to force my dream on my family - but decisions are becoming harder when you aren't making any money."

Will the banker finally just pull the plug on Struthers? Struthers says there is currently a renewed effort between him and the banker to try to work things out. Both realize his borrowing power is "maxed out."

Struthers may be down but he is not out yet. His banker has talked to him about presenting the bank with a new plan for survival and possible restructuring of the hog loan.

"We have to show the banker the level of risk we can stand so we can restructure the loan," says Struthers with renewed hope in his voice.