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Pork Industry’s Losses Exceed Those of 1998-99 Disaster

Article-Pork Industry’s Losses Exceed Those of 1998-99 Disaster

U.S. pork producers have now lost more money than they lost in the pork price disaster of 1998-99, says 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 says. He spoke at the annual Swine Institute held in Columbia, MO, by the Missouri Pork Association and the University of Missouri Commercial Agriculture team.

“From October 2007 to October 2009 the average hog was marketed at a loss of $19.18/head,” Plain says. 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 reports. “The 1998-99 disaster lasted 27 months and claimed $4.75 billion in hog farm equity. Losses in the current crisis topped that amount on Nov. 13. Plain didn’t offer much optimism for 2010. Live-hog prices next year will average in the range of $43-47 per hundredweight, based on the Iowa-Minnesota negotiated live-hog base price. That outlook is up $3-6 from 2009. The cost of producing 100 lb. of pork now averages $52. Last summer, when corn prices were higher, the cost of production reached $62.

This current hog crisis includes high feed costs, world recession and a glut of pork. The 1998-99 price crisis was based on an overproduction of hogs that sent prices below a dime a pound.

This time producers face moderately low market prices but record-high production costs.

Plain says he expects the hog farm price squeeze will get worse before it gets better. “Bankers will begin forcing the issue. Under their financial rules, bankers don’t have much wiggle room. They will not be renewing many hog loans.” Producers have been their own worst enemies. As they sent more sows to slaughter, the pounds of pork continued to increase. Production per sow is up 3.5% this year, he says. Weak consumer demand has compounded producers’ problems. “We are in a recession that has lasted longer than the Great Depression. Weak demand is felt not only in the United States, but worldwide.”

Loss of export demand due to mislabeling the H1N1 flu as swine flu has damaged trade. The recent announcement of a lift in that ban by China will not be enough to lift prices to profitable levels.

The issue of too many pigs and not enough buyers won’t be solved until production is cut by 15%.

Farmers have sent sows to slaughter, but they kept more replacements gilts, defeating the potential cut in pork. Voluntary reductions have not worked, leaving bankers to turn the tide. “Hog farms will be going out of business,” Plain says. “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%, almost twice the national average cut of 3.4%. Smithfield, the largest U.S. producer, cut 9%, he says.