BANFF, Alta. – Ending captive supply in the American meat packing business may not correct market problems the way some producers hope.
The United States Congress is working on legislation to implement mandatory price reporting by next spring or summer.
One industry analyst is skeptical government regulation can ease marketing problems.
“I think people will be disappointed. It won’t change a lot of things,” said John Lawrence, a livestock economist at Iowa State University.
Captive supply is a concern within the hog and beef industries because there is no proof what prices are paid in private deals.
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In 1997, 57 percent of American-raised hogs were sold under some form of contract.
Lawrence estimates the 1999 figure is close to 65 percent. Most were sold to a packer using a special formula price that was tied to the cash price.
Industry integration and consolidation are becoming the norm in the U.S. and the trend will continue despite mandatory pricing, Lawrence said at the recent Banff pork seminar.
There are fewer and larger firms in each sector of the hog chain. Last year, four firms in the U.S. produced 58 percent of the pork.
In 1988, 32 percent of the pork was grown on farms with less than 1,000 sows. By 1997, those farms produced only five percent of the pork. More than a third of the market hogs were born on 147 farms raising more than 50,000 sows.
Nationally, small operators are leaving and big companies are becoming larger.
In Lawrence’s home state of Iowa, 90 percent of the people who left the hog business had fewer than 1,000 sows. Smithfield Inc., for example, owns 11 percent of the U.S. sow herd and is the largest seller of pork in the country.
It continues to aggressively add farms to its market empire.
These massive changes were felt most extensively during the tough times that started in 1998. Huge losses clobbered the production sector and a major rift continues among producers, packers and the industry association.
“The U.S. pork industry has lost $4 billion (U.S.) in the last two years,” said Lawrence.
From September 1998 onward, two million head were killed every week and the slaughter peaked at 2.2 million.
There were not enough buyers for the pork and American losses of $60 per head were reported. By spring of 1999, 600 million pounds of pork were parked in cold storage.
Pork is selling again and hog production is down by three percent so there is no danger of exceeding that two million weekly slaughter for some time.
“Movement has been phenomenal this past fall and we are hopeful this will continue in the coming year,” he said.
The latest U.S. Department of Agriculture report counted 59.4 million hogs and pigs.
U.S. farrowing intentions for this year are down three percent. The breeding herd is down by 6.2 percent and the number of market hogs is down four percent.
Lawrence predicts U.S. hog prices this summer will be in the low to mid $40s. This is $10 more than last year and the market remains fragile.
For Lawrence’s pork and beef outlook see: www.econ.iastate.edu/faculty/lawrence.
