June 9, 2008

 

US hog producers to face tighter credit

 
 

Agricultural lenders are concerned about the current economic conditions facing swine producers and are taking steps to protect themselves and producers from extensive losses, participants at the World Pork Expo heard.

 

The World Pork Expo was held from June 5-7 in Des Moines, Iowa.

 

Bryan Black, president of the National Pork Producers Council, on Thursday (June 5, 2008) said producers lost an average of 4 percent to 5 percent of their equity on a monthly basis from September through April for a collective total of about US$2 billion.

 

According to market analysts interviewed on the sidelines at the World Pork Expo, agricultural lenders continue to work with their producer clients but are requiring increased use of price protection. Several have put tighter limits on the working capital they will lend.

 

The problem is that input costs for agricultural operations of all types have risen sharply, financial advisors said.

 

Corn prices are up 150 percent from a year ago while soymeal is about double the year-ago level.

 

The higher feed costs along with rising expenditures for energy and transportation requires more operating capital from producers.

 

As costs rise, these producers may have no choice but to trim their herds, analysts said.

 

Economists and producers said the first cuts have been or will be made by culling the least productive sows. Older or less efficient facilities will be taken out of production, if necessary, and could remain idled until hog returns recover to a profitable level.

 

Steve Meyer, analyst with Paragon Economics, in a grain market outlook session on Thursday recommended to producers that they make use of options on futures prices for price protection on corn and soymeal.

 

He expects demand for corn from the ethanol industry as well as world markets to remain strong. He is also concerned that the extended wet spring could reduce corn plantings from planned levels and late plantings could result in reduced yields, both of which could push corn prices even higher.

 

Glenn Grimes, agricultural economist at the University of Missouri, in a hog market outlook presentation Thursday afternoon encouraged producers to consider using lean hog futures for price protection. He said producers should aim to ensure they are still in business in late 2009, which he believes will be the time when they will again return to profitability.

 

However, a livestock dealer said producers are very reluctant to use futures at a time when doing so would result in a loss, even a small one.

 

Still, he said, in these trying times, futures may be the best thing for producers to do to protect themselves from even larger losses.