CHICAGO, Ill. (Reuters) —Chuck Souder has relied on corn and soybeans for decades to keep his 400-acre Iowa farm running.
However, slumping soybeans and corn selling for half its price two years ago prompted Souder to shift to what he hopes will be a more profitable crop: pigs.
Souder spent US$850,000 last year to build a wean-to-finish barn, which can house nearly 2,500 animals at a time. He is not alone.
Iowa farmers have filed nearly 700 construction applications since 2013 for new or expanded hog buildings, which is a six-fold increase from five years earlier, records show. Minnesota, Missouri, Illinois and other states are seeing a similar surge, said state agriculture officials.
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However, farmers are finding that their gleaming new barns have had an unintended consequence, contributing to a glut of hogs that sent pork prices to their lowest levels in years.
Hog futures prices hit a four-year low last week because a strong dollar has made U.S. pork more costly than meat from competing countries. This has led to a slowdown in exports, especially to China.
As well, export slow-downs because of a labour dispute at west coast ports has left stocks of pork products piling up.
Pork prices followed beef prices to record high levels last year as the cattle herd shrank and a hog virus diminished the U.S. herd.
Pork prices have since fallen, but U.S. consumers that had switched to chicken are not yet returning to “the other white meat,” say retail food analysts.
Boneless pork loin prices have fallen more than 15 percent at retailers in the past two months, and the U.S. Department of Agriculture last month predicted U.S. hog prices will drop 17.5 percent overall this year.
“Now that pork prices are collapsing, this could make pork more competitive,” said Jared Koerten, senior foods analyst with research firm Euromonitor International. “The question is, will (consumers) switch back from chicken to pork?”
The hog barn boom in rural America began as meat packers pressured farmers to rebuild quickly after the deadly porcine epidemic diarrhea virus killed 8.5 million piglets in 27 states.
The building boom has facilitated a surge in the U.S. hog and pig herd, which has rebounded from an eight-year low of 65.1 million head this past September to 66.1 million as of December, according to USDA data. The department expects pork production to increase by 4.6 percent this year over last year.
Meanwhile, hog producers could be facing declining margins and rising debt payments in the years to come.
“When times get tough, and they will in the next two or three years, that’s when you’ll see some of the farmers be tested,” said Will Sawyer, a protein analyst with Rabobank.
The fall in U.S. pork prices is occurring amidst an unexpectedly sharp fall in demand from China, which has been a large U.S. export market. U.S. pork exports to China last year were down 34 percent from a year earlier as high U.S. prices sent Chinese buyers to lower-priced suppliers from Europe.
Many meat packers also curtailed their pork exports to China because of the livestock drug ractopamine, a growth stimulant U.S. hog farmers use to add animal weight before slaughter.
China bars shipments from at least 25 U.S. pork plants because of ractopamine issues, said Joel Haggard, Asia Pacific director of the U.S. Meat Export Federation.
Domestic Chinese factors also are at play.
The country’s economic slowdown has contributed to a nine percent decrease in demand for pork, according to hog industry research firm Soozhu.com. Meanwhile, Chinese hog production is on the rise, with 735 million pigs raised for slaughter, up 2.7 percent from 2013, said Feng Yonghui, general manager at Soozhu.com.
There are signs the Chinese hog boom may have overheated, with producers losing money for 13 months in a row, Feng said.
“Long-term losses are leading to many farmers going bankrupt,” Feng said.
In the U.S., farmers like Souder are still hoping for the best.
“I have faith this will be a good for our family and our farm,” he said.
“We have six to seven years to pay everything off.”
