DES MOINES, Iowa – Glenn Grimes is old enough to have served in a B-29 crew in the Second World War.
And he has been studying the hog industry since 1951.
But the University of Missouri agricultural economist has never seen it so bad for hog producers.
“It’s never been this far down for this long,” said Grimes, estimating that farmers will lose money through the rest of 2009.
The disconcerting news is that it needs to get a lot worse for many more producers before the survivors can recover, said Grimes in an interview during the World Pork Expo.
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The North American sow herd needs to shrink by five to 10 percent from the current level, he said.
How does that happen in an industry in which bankrupt facilities are sold off to new owners who immediately put the operations back into production?
“I don’t know. I just have to admit I don’t know how it’s going to play out,” said Grimes.
Average prices for the third quarter will probably be around $62 US per cwt. with fourth quarter prices of $57-$61 for the Iowa-southern Minnesota area, which is the North American benchmark.
Combined with high feedgrain prices, it will produce losses for many producers faced with a brutal margin squeeze.
“Our problem has not been demand for pork or prices,” said Grimes in his speech. “It’s cost.”
Farm marketing adviser David Bauer of Cedarburg, Wisconsin, said farmers are angry, disgusted and dispirited by the sudden downturn in prices that began with H1N1, recovered, then slid again with economic worries. Farmers have been losing money for two years but expected this year to bring some relief.
“2009 was supposed to be the comeback year,” said Bauer in an interview. He estimates that the average American hog producer lost $13 per head in 2008 and will lose $17 per head in 2009.
Hog market economist Steve Meyer of Paragon Economics agreed with Grimes’ assessment that the breeding herd must be reduced by five percent or more.
Demand is weak and production has risen because of the introduction of the circovirus vaccine in 2007. That increased productivity, exacerbated by a 20 to 30 percent cost increase due to expensive feedgrains and a slump in demand in 2009, means a drastic breeding herd reduction is necessary.
“We never made the downward reduction in the sow herd that we needed to make,” Meyer said.
While sow cull has been slow in the past year in the U.S., it could come quickly now that prices have slumped and 2009 looks like a poor year, Meyer said.
Many farmers have used up their equity and will soon have the financial rug pulled out from under them by their bankers.
“This last week (of market prices slumping) will go a long way towards (driving producers out of business),” said Meyer.
During the World Pork Expo, many people said that about 30 percent of U.S. hog producers have lost all their equity and are likely to be forced out of business by their bankers.
Some U.S. hog producers have been trying to organize a voluntary sow reduction plan, referred to as the Producer Retirement Program.
Grimes noted that feedgrain prices will play the biggest role in determining whether hog production is profitable for the rest of 2009.
The doubling of corn prices from near $2 per bushel early in the decade to around $4 has tightened a vise on producers.
Far higher prices for hogs are needed to produce a profit now.
“We can’t seem to get above $60 and hold it,” said Grimes, who had hoped to see $75 by July before reducing his estimates.
Iowa State University economist Robert Wisner offered little hope for lower feed prices. Much reduced South American crop production and tight soybean meal supplies in North America mean the recent crop price rally is well supported, Wisner said.
He expects to see cash corn prices in Iowa of $3.80 per bushel, “and that’s a conservative number.”
Meyer said the Achilles heel for the industry is weakening consumer demand. The late April slump in prices was caused by the sharp reaction of traders to H1N1 news, but the second dip occurring now is due to the belief that demand will not rebound.
Sow numbers need to fall to match pig production to falling pork demand.
“There’s so much negative on the demand side,” said Meyer.
“Supplies are about what we expected. They are not burdensome. It’s a demand issue and we’re just going to have to work through it.”
