U.S. Pork Industry is in a Tough Spot
By Marlys Miller (Monday, April 07, 2008)
Pork producers are losing money on each hog they sell today -- to the tune of $20 to $30 per animal. Following USDA's March Hogs & Pigs Report, which showed the breeding herd unchanged from March 2007 and spring farrowing intentions that also equal last year's levels. Fall production is expected to rise by about 1 percent, followed by a 2 percent decline next winter.
So, it looks like those losses will be hanging around for a while. Just how long depends on producers' commitment to cut back. "That means aggressive liquidation, most likely based on financial attrition," says Chris Hurt, Purdue University agricultural economist. "That is not a pretty solution, but it is the market solution, and markets can be brutal.
"As those producers go down one by one, many of them may lament the crazy times they were caught up in as the biofuels era and the unusual macroeconomic events changed agricultural market relationships in 2008."
While that is true, the industry also is responsible. As a whole, producers may have gotten a bit drunk off of nearly 5 years of profits and a soaring export market. Too much of a good thing tends to produce extreme swings. The question is, "Who is going to bail out the pork industry?" Hurt asks.
He points to the Federal Reserve Bank of the United States which has recently helped assure that an investment bank would remain liquid. Congress also is considering assisting homeowners caught up in sub-prime mortgage problems. But pork producers are on their own.
"Farm-state politicians in the upper Great Plains hope to add billions of dollars for disaster assistance in the next farm bill, even before there is a disaster. Perhaps they need only to look to the pork industry to see a financial disaster in progress," he says. Pork industry-wide losses may total $3.5 billion this year, an amount that nearly equals 25 percent of the total production value.