Why this little piggy did not go to market
Many farmers on brink of bankruptcy as hog prices fall toDepression-like lows.
Americans may have had their fill of pork roast and hams and other holiday fare. But the nation's hog farmers are sending out an urgent request: Eat more pork.
A surfeit of hogs has dropped prices to Depression-like lows and pushed many farmers to the brink of bankruptcy. The market turmoil happened so quickly and unexpectedly that many in the industry are searching for answers. Did prices fall because of a freakish combination of events? Or is the industry's move to factory farming behind the mess?
The markets have rebounded somewhat in recent days, stirring hopes that the worst is over. But the financial damage has been so widespread that many farmers won't recover, predict economists. And it calls into question the industry's aggressive strategy to feed the world.
"There should have been a lot of people who saw this train wreck coming, and no one did," says Jens Knutson, an economist at the American Meat Institute in Arlington, Va.
Hog prices never this low
"I've never even seen anything like this," says Glenn Grimes, professor emeritus of agricultural economics at the University of Missouri at Columbia and a 48-year veteran of the industry. "We've never before taken hog prices this low relative to cost."
Farmers have to sell their hogs for anywhere from 34 to 38 cents a pound to break even. (That's for the live weight of the hog, not the price for pork in the supermarket.) For the last two years, hog farmers earned far more than that. And as late as midsummer they were making a profit.
Then prices began falling because markets expected a modest increase of supply for fall. By early October, however, packing plants realized that instead of a small uptick in supply, they were faced with a whopping 10 percent increase that would be impossible to handle. Wholesale prices plummeted.
By mid-December, hog farmers were getting only 8 cents a pound; some reported as low as 5 cents a pound. That meant that for every animal they marketed, they were losing up to $70 - a huge loss.
"There are going to be some bankruptcies," predicts Randy Sims, a mid-sized hog producer in Liberty, Ill. "We're all sitting out here figuring: Do I want to be a part of this new industry, or do I want to get out?"
In his own case, Mr. Sims figures that at the worst point, his farm was losing $10,000 a week. At that rate, he figures he'll run through all his operating funds by the end of June.
Still, he figures he'll hang on because, like many producers, he has too much invested in his hog facilities to give up. Sometimes, prices drop so low farmers have to hold on, he says.
In recent days, prices have rebounded somewhat to 15 to 18 cents a pound.
"The worst is behind us," says Mr. Knutson of the American Meat Institute. "The question is how quickly we recover." He doubts the industry will recoup its losses in 1999.
Mr. Grimes, the economist, figures losses could climb so high in 1998 and 1999 that the industry's net worth would shrink by roughly 40 percent. Those cutbacks will make it harder for the pork industry to continue expanding its export markets aggressively.
Farming a huge loss
Part of the industry's woes lie with the packing industry, which downsized because of two years of deep financial woes. Fewer slaughterhouses meant the industry couldn't handle surpluses as it did in the past.
Strikes at several Canadian packing plants compounded the problem because Canadian farmers sent their hogs to the United States. But the biggest problem remains the industry's own excess production.
"Where did these hogs come from?" Knutson asks. "They didn't come from the small family farmer down the road."
Instead, they likely came from the huge megafarms (which represent fewer than 1 percent of the operators but produce more than one-third of the nation's hogs), and family farmers who were increasing their own production in order to compete with the new big players.
Sims, the hog farmer, had planned to build a huge new facility with eight partners, but the group has put the idea on hold (although they may still buy an existing facility).
"We are all a lot humbler," he says as he looks for ways to cut expenses and reduce his own inventory. He's given away hogs to his employees and brought home more than the usual amount of bacon. "We've been eating pork so much I'm getting tired of it."