The prospects of three years of red ink have participants in the pork industry reeling and searching for answers.
For a number of producers, the next 60 to 90 days may prove critical as they struggle for ways to survive, says Neil Dierks, CEO, National Pork Producers Council (NPPC).
Producers have basically lost money since September 2007 and on average have just 32-35% of their equity left, he said at a World Pork Expo press conference in Des Moines, IA.
Extended losses have been driven by lower prices and slower export sales that began in late April when the H1N1 flu outbreaks first occurred. The economic impact of those outbreaks to the pork industry is estimated at $300-400 million, Dierks reports.
Lenders and agricultural economists are forecasting that the U.S. herd needs to be trimmed by 3-5% over the next six months for producers to see prices return to the black.
“We’re going to lose producers over this period,” Dierks says, and it’s expected to affect producers of all sizes.
In the last 20 months or so, producers locking in prices on the futures market have fared the best. But now those prospects have turned bleaker with no profitable prospects seen until into 2010, he says.
Since September 2007, producers have averaged a loss of $23.11/head, based on national total net weighted average hog prices, national average carcass weights and Iowa State University estimates of farrow-to-finish production costs, Dierks reports.
Iowa State University estimates based on May 22 corn and soybean meal futures prices that producers will lose $12.22/head for the remainder of 2009. That translates into an average loss of $25.6 million per week or $794 million for the U.S. pork industry for the rest of 2009.
Glenn Grimes, University of Missouri professor emeritus, points out that a big part of the problem also stems from the rise in production costs. In 2008, hog prices were $2.60 above the 13-year average, but production costs were $13.85 above the 13-year average.
The pork industry continues to become more efficient as evidenced by the fact that the 35 weeks with the largest slaughter have all occurred since September 2007, he explains.
Grimes forecasts 2009 slaughter will be down 4% from 2008 and prices will range $59-$61/carcass cwt., compared to $63.58 in 2008.
U.S. pork exports are forecast to be down 12% for 2009, with pork imports off nearly 4% from 2008.
The U.S. Department of Agriculture (USDA) provided $50 million in supplemental pork purchases in May 2008, followed by another $25 million in purchases of pork for federal food assistance programs. A more recent request for USDA to buy $50 million of pork for federal food programs has not been granted to date, NPPC said.