June 4, 2009

 

Next 60-90 days critical for US hog producers

 

 

The next 60 to 90 days will be a critical period for many US hog producers, and returns during this period could determine whether some remain in business or exit.

 

After losing money since September 2007, producers on average had only about 40 percent of their equity left as of the end of March, according to Neil Dierks, chief executive of the National Pork Producers Council.

 

Dierks, who spoke Wednesday (June 3) at the World Pork Expo, said further losses driven by lower prices and slowed export sales from the AH1N1 influenza outbreaks since April have further reduced producers' equity to around 32 percent to 35 percent as of last week.

 

The economic impact of the AH1N1 influenza on hog producer incomes has been estimated from US$300 million to US$400 million.

 

Dierks said some producers have "already burned through their equity." He said in discussions the organization has had with lenders and agricultural economists, they indicated that the herd needs to be reduced by 3 to 5 percent over the next six months.

 

"We're going to lose [hog] producers" over this period, Dierks said. Producers of all sizes are hurting, and the risks appear to be uniform across the board, he said.

 

Producers that do not utilize price protection on their hogs or inputs have been the most at-risk group during the past 20 months but currently, futures prices do not allow anyone to lock in a profit on hogs until into 2010.

 

Lean hog futures prices in the nearby contracts were down the 300-point daily limit Tuesday, and cash prices fell as well along with wholesale pork values.

 

Chicago Mercantile Exchange nearby lean hog futures continued their decline Wednesday due to pressure from bearish fundamentals. As of 11:52 a.m. EDT, July hogs were down 80 points at 61.35 cents a pound.