Losses Continue to Mount

I looked back at some of my previous columns that I had written for National Hog Farmer’s Weekly Preview, and I find myself growing tired of even writing about the continued losses that the industry is experiencing. When the price for hogs is sitting at close to $57/cwt., carcass, pork producers are receiving about $114 a head for their hogs, while their cost to raise hogs is close to $140 a head. This equates to a $25 per head loss, and as you look forward, there are no profits in sight on the futures market until the middle of 2010.

In addition, pork cutout value is actually running below that of cash prices. Cutout value on June 24 was at $53.44, almost $2.50 below the cash price for that date. There’s no doubt that everyone in the pork industry is in need of some financial relief – but so far there does not seem to be any sign of relief in sight.

PRP – Sow Liquidation
The PRP or Producer Relief Program came to an end last week due to a lack of people willing to fund the program. Unfortunately, with the current economic stress facing the pork industry today, most producers are not willing to part with any cash because of the need for them to preserve every ounce of liquidity for their operation. I absolutely understand this position and respect producer’s decision of not wanting to fund the PRP at this time.

There is a common belief in the pork industry today that the sow liquidation will occur automatically and thus, rectify the current situation. I think it is wise to spend some time in this week’s column looking at currently sow slaughter data, showing where sow numbers are at today, and what the pork industry needs to do going forward to achieve a reduction of 300,000 sows in the United States.

Attached is a chart that shows the level of sow slaughter through the week of June 2, 2009. We are currently, for 2009, at 164,000 sows below a year ago. For the year, this equates to an average of 387,600 less sows being processed than a year ago. I do believe that we will see higher numbers going forward, but now let’s review some important numbers contained in the chart.

The top line in the chart represents 2008 sow slaughter numbers. During the last 30 weeks of 2008, we had very close to 1,987,000 sows that went to slaughter. That is an average of 66,260 sows per week. (There is also four holiday weeks in this equation) If everyone agrees that the pork industry needs to cull 300,000 sows in order to have an opportunity to return to profitability, that means producers would need to send 76,260 sows to slaughter per week (10,000 sows more than last year). I believe this is the number that the industry needs to look at and meet. My concern is that I am not sure if our packing industry can comfortably slaughter and process that many sows per week. I also just talked to a sow buyer this week who says he is actually short on sow slaughter numbers.

The bottom line is we in the swine industry have a supply problem – and it is not going to go away right away. The swine industry needs to address this issue and take bold steps to confront a two-fold problem. The first problem is an oversupply of hogs and the second problem is our product is undervalued.

Value Price for Pork – Prices on the East Coast
I just returned from a vacation trip to the Boston area and I went to the supermarket to look at where retail pork prices stand. There were no “big” specials on pork products anywhere. In fact, from a value standpoint for this week, chicken was being featured much more than pork. In looking at the prices, I saw baby back ribs at $2.99 a pound and boneless chicken breasts at $1.99 a pound. There were no other real specials on any other pork items.

In my view, it seems that retail margins for pork products in this store were very large. The question I have is: What are we doing to educate the retailer that this industry is under tough financial times, and what can we do to establish a much fairer value for our product to get people to eat more pork? This may have been an isolated incident, but when you see the large population that exists on the East Coast, and you see the prices at the supermarket, you start to ask yourself some questions.

Click to view graph.

Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com