June 1, 2009

 

 

North Carolina's US$2 billion hog industry is seeing some mid-range swine producers into bankruptcy and some out of the business.

 

Overly large herds and rising costs due to higher grain prices have been reaching bottom lines at many hog operations in North Carolina, the nation's second largest hog-producing state, behind only Iowa.

 

The recent swine flu, or AH1N1 flu, scare, have also added burden -- the effects of which the industry is only starting to tally up.

 

Deborah Johnson, CEO of the North Carolina Pork Council, an industry trade group said they are beginning to see some (hog farmers) leave the industry "due to financial hardship."

 

At three eastern North Carolina operations, relief from the pressure will come from Chapter 11 or Chapter 12 reorganization. Chapter 12 is a provision written into the federal bankruptcy code in 1986 dealing exclusively with family farms. Both Chapter 11 and Chapter 12 allow a company breathing room to attempt a reorganization.

 

In their reorganization filings, Bunting Swine Farms of Wilson listed assets of just under US$1 million and debts of US$12.4 million; Perfect Pig of Newton Grove in Sampson County listed assets of US$9.3 million and debts of US$23 million; and D&B Swine Farms Inc. of Enfield listed assets and debts in the US$1 million to $10 million range.

 

All three are considered mid-level operations, producing between 100,000 and 200,000 hogs a year. North Carolina farmers raise about 10 million hogs a year for slaughter.

 

Some farmers are independent, taking their product directly to the market. Other farmers operate under contract with one of the major pork producers, such as Virginia-based Smithfield Foods, which in the past has had contracts with more than 1,000 North Carolina farms. Another prominent producer is Goldsboro Hog, which has had deals with as many as 150 North Carolina farms.

 

Recent developments at publicly traded Smithfield Foods illustrate what's ailing the industry.

 

The meat-producing giant, in a recent US Securities and Exchange Commission filing, reported losses of US$112 million for the nine months ending Feb.1, 2009, explaining that its costs per hundred weight of hog had risen from US$49 to US$62, largely due to higher grain prices. The company attributes the rise in grain costs to "the US' corn to ethanol policy." Meanwhile, as costs were climbing, the Smithfield managers say, the market was glutted because a record numbers of hogs were slaughtered in 2008 and into 2009.

 

Demand for pork at the grocery store has been flat in recent months. New retail numbers will begin to tell the effects of the AH1N1 scare. While a final determination has not been made, the blame for the flu outbreak is being laid to hog farms by some.

 

In response to market conditions, Smithfield has been closing some production plants, including one in Elon near Burlington, and shaving 1,800 employees companywide.

 

Dr. Todd See of North Carolina State University and an ex-officio board member of the North Carolina Pork Council said the whole industry is feeling the pressure.

 

Looking down the road, grain prices have started to moderate in recent weeks and, Johnson says, the latest North Carolina herd is expected to be 3 percent smaller than last year's.

 

Nationwide, the movement toward smaller herds might be even more pronounced than North Carolina's 3 percent, says Christine McCracken, an analyst with Cleveland Research Co.

 

She said a lot of hog producers have been losing money for 18 months which is actually a long time.