An eminent American hog analyst says producers will soon be slopping around in the same overproduction crisis they had a few years ago if they don’t slow down
“We’re very concerned we may be in for a repeat of ’98,” said University of Missouri agricultural economist Ron Plain.
“Something very unpleasant is going to happen to hog prices if what we think is about to happen occurs.”
There are strong indications that producers in the United States will expand the American herd by five to seven percent over the next two years.
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If that scenario plays out, American and Canadian farmers could be facing prices as abysmal as the ones that left many producers bankrupt in the fall of 1998.
Plain said U.S. slaughter numbers for sows and gilts are low and feeding margins are “extremely good” — all strong indicators of rapid herd expansion.
The hog-corn ratio, which represents the price of hogs divided by the price of a bushel of corn, is 25 to one.
“History says any time it gets over 20 to one, we get an expansion.”
But the U.S. slaughter industry is already operating dangerously close to capacity. About 98.5 million hogs will be processed this year.
The most the industry can handle is 102 million hogs and, according to Plain, that capacity isn’t going to change for the next few years. But Plain’s numbers and instincts are telling him farmers are gearing up to sell 105 million hogs by 2002.
“We might be able to kill 102 (million) if we tried real hard, but we don’t have the capacity to kill 105 (million),” said Plain.
“It doesn’t make any sense to produce more hogs than packers can kill. Housewives do not accept the live hog as a substitute for bacon, we’ve discovered.”
Ruling out increased slaughter capacity, the way to avoid a price crash lies in the ability of American hog farmers to resist the temptation to expand production.
That means reducing the breeding herd by two to three percent each year for the next three years. But that doesn’t appear to be happening. Producers are actually increasing the breeding herd.
The tension would ease if the four million Canadian hogs now slaughtered in the U.S. each year were processed in their home country.
The Maple Leaf plant in Brandon is still operating with less than one full shift. Plain would like to see the plant running with two shifts.
“If Canada could get to where you kill all of your own hogs, then we could stand more growth in U.S. hog production before we hit our slaughter ceiling.”
Plain said millions of Canadian hogs go south because U.S. plants pay more for slaughter hogs.
Janet Honey doesn’t think price is the reason Canadian hogs are being slaughtered in the States.
Honey, the market analysis and statistics manager for Manitoba Agriculture, thinks producers are locked into long-term contracts with U.S. processors.
The hog price north and south of the border has become so similar that it doesn’t make sense for Canadian producers to haul their pigs the extra distance for any other reason, she said.
Canadian producers should be concerned about Plain’s dire predictions.
Honey thinks producers should be signing contracts with packers now.
