A series of shocks could rock U.S. pig farmers in the next three years, says a major American hog industry banker.
Unless hog prices recover and country-of-origin labelling laws can be removed, farmers in Canada and the United States will be in trouble, said Mark Greenwood, a vice-president with AgStar Financial Services of Mankato, Minnesota.
“It will speed up vertical integration,” said Greenwood about mandatory COOL rules. “It will put the small producer out of business in the States. It will devastate the small producer.”
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Greenwood told the Manitoba Pork Council’s annual meeting that the general price outlook is improving. Prices in the third quarter of 2003 should be better than now, and 2004-05 prices should average about $43 US per hundredweight live.
With present cost of production, that should give many producers a decent income.
But COOL is a huge threat. Pork prices won’t rise to pay for the labelling costs, but someone will have to pay for it and that will be the farmer.
“The packer is putting the onus on the producer,” Greenwood said.
The true cost of recording and tracking every pig born and raised or imported into the U.S. is unclear.
“We have no frickin’ clue,” said Greenwood. “We don’t know.”
One tracking program tried by some producers has a cost of $2-$3 US per head – but that doesn’t include the cost to packers and retailers.
If COOL is not amended – and amending it will be difficult since it is included in the U.S. farm bill that was passed last year – the producers’ best hope is that its rules are not enforced.
Greenwood said packers might choose to stagger slaughter, bringing in Canadian hogs for all-Canadian runs.
Or some packers may simply decide that COOL requirements will cost too much and shut plants.
No matter what, COOL will slow slaughter. With each one percent reduction in slaughter capacity costing $5 US per hog, that will be
expensive.
That is where the farmers’ true costs of production will be shown, said Greenwood. In the 1990s, in order to get bank financing, many producers won contracts with packers by claiming artificially low costs of production.
“They always told the processors what they wanted to hear,” said Greenwood. “They probably weren’t stating all their costs.”
He said packers believe that pig producers need about $32-$34 to break even, but a true breakeven is closer to $40.
“If we don’t get a better recovery on prices you’ll see a pretty good sized buckle in the industry in the next 12-18 months,” said Greenwood.
New operations will be taken over by other operators, but many older operations will be closed if prices don’t rise above true breakeven costs.
Greenwood hopes mandatory labelling can be avoided by introducing new legislation that will neutralize the rules contained in the farm bill.
He said that rather than amending the farm bill itself, legislators might try to attach new, less severe labelling rules in some other, unrelated legislation, and override the COOL laws that way.
“You tack it onto another bill that you know no one’s going to veto,” said Greenwood.
Farmers are only now waking up to the danger, but packers are already pushing hard to kill COOL.
“They think it’s an absolute nightmare,” said Greenwood.
