WEST LAFAYETTE, Ind. — Dubbed the “worst financial year for pork producers since 1998,” it seems things can’t get much worse for the North American swine industry. But unfortunately, it can, said Purdue University agriculture economist Chris Hurt.<br>
According to Hurt, by combining the escalating cost of grain used for feed and an overpopulation of hogs in general, the once makin’ bacon industry is on track to suffer extreme losses during this year with no signs of slowing down.<br>
“We estimate losses of $27 per head on average for 2008 for farrow-to-finish operations and those taking the market risk,” lamented Chris Hurt. “That compares with the previous worst year of 1998, where our estimates showed an average loss of $15 per hog.”<br>
In the fourth quarter of 2007, pork supplies were up 10 percent and the excess supplies, which began last October, continue in 2008, Hurt explained. “The new year has brought no relief,” he said. “Production has been up 11 percent through March 1, versus previous years’ levels, and I don’t see an end in sight.”<br>
Sow liquidation is in the planning stages, but Hurt said it’s not yet showing up on the radar screen of supply and probably won’t for another 5-6 months.<br>
However, pork-giant Smithfield recently announced a drastic reduction of 40,000-50,000 sows, which may show up on the supply side within the next several months. Additionally, the Canadian government will subsidize liquidation of sows via a national buyout program. According to Hurt, this is expected to help reduce Canada’s breeding herd by nearly10 percent.<br>
“We get over 9 percent of our hogs from Canada, so that will certainly help lighten supplies in the United States,” Hurt said. “Unfortunately, it’s going to be fall before we see the lightening of the Canadian supply of hogs.<br>
“So this brings us back to other large companies and some of the independent family farms where they’re at a point to reduce or liquidize their herds because their buildings are depreciated or the operator is at a comfortable age to retire and ready to get out of the hog business. We clearly have some independent hog producers that also own farmland and realize there’s a new way to add value to their corn.”<br>
Hurt expects to see a transition in the reduction of this herd by 6 percent to 8 percent, if not an 8-10 percent reduction. Much of the reduction in pork supplies can’t begin to occur until the fall of 2008 due to the production process, and it will be spring and summer of 2009 before hog prices are much better, Hurt said.<br>
Hog prices in January and February of 2008 averaged near $40 per live cwt., with costs of production for farrow-to-finish operations estimated to be close to $54.<br>
“The poor outlook for losses will not change until we get a reduction in pork production in the United States,” Hurt said. “We’ve got production costs currently above the mid-$50s, and we are going to see some strength in the hog prices further into the spring.<br>
“I think we’ll be in the high $40s and probably very low $50s for the summer as averages for hog prices. The problem is feed costs - the corn and soybean meal. The cost of production could push up nearly to $60 per cwt. if we see these grain and soybean meal prices hold where the futures market suggests. So yes, we can get some strength in hog prices, but they can’t catch up with the extreme costs for this year.”<br>
Last fall corn was close to $3 per bushel at the low end, and now the price is closer to $5.50 per bushel, and soybeans have experienced similar market price volatility, he said.<br>
Producer perspective<br>

Tipton County pork and grain producer Randy Salsbery feels he is in a pretty good position and doesn’t plan to make any major changes on his 1,400-sow farrow-to-finish operation, despite Hurt’s gloomy outlook.<br>
“Since we grain farm in addition to our hog operation, we have corn in the bin. We’re not buying any corn, and we have soybeans to sell to offset costs,” said Salsbery, who farms with brothers, Tim and Pat, and sister, Becky.<br>
“For our operation as a whole, this is pretty normal for us, we’re not getting hurt at all by this.”<br>
In fact, Salsbery said even though he is losing money on his pigs, he is able to make up for those losses and still make money through the sale of corn and soybeans at market-high prices.
However, Salsbery worries that the large pork operators may be the ones who suffer the greatest losses because they purchase the bulk of their grain and become subject to the volatility of the grain market. “My guess is their losing $50 per pig, on a 100,000-sow farm, producing nearly 2 million pigs per year, that’s $100 million they are losing per year,” he estimated.<br>
“Also, I think we’ll start to see a lot of smaller farmers who make enough money with grain, getting out of the hog business,” he added.<br>
Salsbery believes “we’re gearing up for high prices now. I suspect with enough liquidation in the industry, we’ll probably see much better prices for hogs in 2009.”
Today, Salsbery said he is selling finished pigs in the mid-$40s and wouldn’t be surprised if prices per cwt. hit the $60s by next year.<br>
“We could see new highs in 2009,” he said in an ecstatic and hopeful voice. “But for right now we’re going to back down the hatches and be more efficient in any way we can.”<br>