AH1N1 worsens US pork slump

The American pork industry is likely to incur a massive US$1 billion loss by the end of 2009 due to negative publicity and trade disruptions caused by the AH1N1.

 

After falling sharply in the first three weeks of the crisis, cash prices for hogs have hovered around US$60 per hundredweight, much lower than was predicted before the outbreak, said economist Steve Meyer, president of Paragon Economics in Adel, Iowa.

 

In addition, futures prices now imply lower cash prices for hogs through next April - a trend that would deny adequate income for producers already hit with rising grain prices and other inputs, asserts Meyer, also a consultant to the National Pork Board.

 

The troubles - which for many began in late 2007 - will likely end up putting some producers out of business, Meyer said.

 

The industry caught a break in the last couple of weeks as grain prices went down. However, Meyer said the business needs to resize and get smaller in order for prices to go up again.

 

As of early this month, actual prices for hogs have hovered from US$12.39 per head to US$31.73 per head below what had been projected before the AH1N1 crisis began, Meyer wrote in a report to the National Pork Board.

 

As such, actual revenues had been slashed by a cumulative US$456 million as of late June, he reported. When stagnant futures prices and the loss of the normal summer peak for hog prices are factored in, losses are projected at nearly US$1.3 billion by year's end, Meyer said.

 

Pork producers have already suffered equity losses of as much as US$4.16 billion since September 2007. Based on July 10 futures prices, producers can expect an average loss of about US$7.50 per hundredweight or US$15 per head in the next three months, Meyer said in an interview.

 

Export disruptions and higher-than-expected pork production have put an estimated 7 percent to 8 percent more pork on the US market, Meyer said.

 

National Pork Board spokeswoman Cindy Cunningham said the pork industry was expecting a turn around on April 1, adding that the industry had been struggling to keep up with costs for grain, electricity to the barn, labour and other inputs.

 

She said producers are "really in a crisis right now because of the lack of profitability in the industry." With the AH1N1 added on top of it, Cunningham said "it's almost like two crises happening at one time".

 

To help producers survive, the pork board has published a series of tips to increase profitability, ranging from stocking management and production practices to the purchasing of inputs. However, most producers have already maximized their efficiency, Meyer said.

 

Meyer foresees a "joint decision" by producers and bankers as to who has the business structure to survive the crisis.

 

The ones that don't are definitely going to find that capital is hard to come by, he said.

 

Meyer said he couldn't predict how many producers will go out of business. He's heard one estimate that 25 percent will go under, although he believes that percentage is a little high.

 

With the smallest producers, Meyer said hog raising is "somewhat of a hobby to some of them." The next tier of producers who raise their own corn have a competitive advantage because they can use their own corn, he said.

 

The tier of producers with 5,000 sows to 25,000 sows that are completely dependent on hogs and don't raise their own feed that are the most vulnerable, he said.

 

Meyer believes the sow herd needs to be drawn down by 5 percent to 10 percent for prices to rebound. But reducing pork production may take a year, he said.