ELLSWORTH, Iowa – The construction business is booming in rural Iowa, as farmers throw their recent profits into new hog barns.
It’s kept truck driver Mark Burmeister busy hauling in concrete slats, which is what he was doing on a mid-June Saturday morning.
“There’s a swack of construction going on this year,” said Burmeister, wiping his forehead as he helped a crane operator lift the slats from his truck at a hog barn construction site.
“It’s the most I’ve seen since 1997.”
That might concern Canadian hog producers because in 1998, as hog production expanded and packer capacity didn’t, prices collapsed in the worst plunge of a century.
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Some economists see the same scenario occurring a year or two from now. Glenn Grimes of the University of Missouri warned hog producers at the World Pork Expo in Des Moines not to leap onto recent profitability as an excuse for a major industry expansion.
A number of factors make expansion perilous.
“If we get a two to three percent growth in the breeding herd by the end of the year, then we’ve got 2006 production underestimated,” said Grimes in an interview.
“We have the potential of a three to four percent growth in 2006 compared to 2005. If we get that much expansion along with (normal) productivity growth, why, that’s going to be a big negative for the industry.”
Grimes said hog prices will be in jeopardy if the recent surge in consumer demand weakens. Recently there have been signs that pork demand has been subsiding from last year’s heady gains.
And farmers need to realize that even slight increases and decreases in hog supplies lead to much larger swings in price than they did in the past. A few decades ago, a one percent increase or decrease in hog numbers would lead to a two percent increase or decrease in prices.
Now a one percent change in hog numbers sparks a six percent change in prices.
That means the hog cycle is just as important today in terms of prices, even though production is not nearly as cyclical. In the past, hog production would swing by up to 20 percent between the price peaks and troughs. Now it moves by less than five percent usually. But with a six-to-one price reaction, the market reaction is just as severe.
“The hog cycle hasn’t gone away,” said Grimes.
He urged producers not to assume strong demand and high prices will continue when they are considering barn expansions.
“Do we or do we not need to grow the breeding herd in the U.S.? No, we do not. Not with 2.5 percent productivity growth. We do not need to build total breeding herd.”
Grimes said he and fellow University of Missouri economist Ron Plain are still predicting that 2006-07 will be close to a break-even year, but “if we lose the demand, it will be a big loss year.”
Grimes is predicting 2005 prices to average $46-$48 US per hundredweight, with 2006 prices dropping to $39-$42 a cwt. Prices in 2004 averaged $51.83.
Iowa hog barn system manager Tom Samp said he has heard worrisome reports of major expansions occurring across the state. But he said much of the new construction is not really an expansion.
“There are a lot of buildings going up, but in our area today, people are dumping their nurseries and putting up isowean-to-finish barns, and they need more room,” said Samp, whose Unique Swine System buys its weanlings from Manitoba.
“They’ll be putting the same number of hogs through, they just need more buildings.”
Burmeister said he wasn’t sure whether all the construction was creating new capacity or just replacing old buildings, but across the state a lot of barns are going up.
“I don’t know what it’s all about. I just haul them,” he said.
