US livestock industry in shambles

Hard times are indeed swaying over the US swine and ruminant industry as more farmers exit the business while conglomerates are struggling to keep afloat.

The Pipestone System, which manages sow farms in the Midwest, has an upbeat motto: "Helping farmers today create the farms of tomorrow." But, the firm admits that farms of tomorrow may be decidedly smaller, if they survive at all. America's pork producers have lost money in 19 of the past 21 months while Pipestone is selling some of its sows. Randy Spronk, a Pipestone owner who also serves on the National Pork Producers' Council, has seen neighbours quit the business.

Corporate outfits are struggling too. In June, Smithfield, the world's largest pork producer, declared its first annual loss in more than 30 years. Beef, poultry and dairy farmers are not doing much better.

Only last year that world's appetite for meat and milk seemed insatiable as pork exports in May 2008 were almost double the level of the year before, thanks to ravenous demand from China. Beef reached its own peak in August, with exports increasing to 66 percent in a year. But even then, the exorbitant price of corn was denting margins (feed accounts for about two-thirds of input costs).

Since then matters have only got worse. Foreign demand has faltered for some commodities and plummeted for others. The United States Department of Agriculture (USDA) on July 17 predicted that exports of beef would fall by nearly 8 percent this year. In the first quarter cheese and curd exports were down by 13 percent; butter was down by 84 percent. The most dramatic swing, however, has been in the pork industry. The second quarter is usually the most profitable one: as it is "the refilling of the piggy bank", says Spronk. Pork supply begins a seasonal dip and demand sizzles thanks to backyard barbecues. But exports in April were already 28 percent below the high of May 2008. The hope of relief was quickly squashed by the AH1N1 pandemic, previously known as swine flu. May's pork exports were 11 percent below those of April and 36 percent below the same month last year. China has dealt the biggest blow, says Rich Nelson of Allendale, a commodity-research firm in Illinois. Exports to that market have all but vanished, falling significantly by 96 percent.

The drawback in exports resulted to more meat being packed onto local shelves. Prices have fallen accordingly. Wholesale pork was 24 percent cheaper in mid-July than this time last year. Cheap pork in turn means competition for beef, which is already suffering from weak demand for expensive cuts. Beef prices are down by 19 percent.

Supply is dropping, slowly. The poultry industry began cutting production last year as Pilgrim's Pride, America's largest chicken producer, filed for bankruptcy in December. Pork producers have moved more slowly. Production in the second quarter was 1.7 percent below the second quarter of 2008, estimates the USDA. Smithfield and Tyson Foods are among the big firms cutting their herds. Any reductions, however, will be at least partially offset. Since 2007 litters have grown at more than double the usual rate, thanks to new vaccines and improved genetics. One group tried to organise a national cull to cut production more quickly, but the effort collapsed in June. Dairy co-operatives have had more success. The National Milk Producers Federation "retired" 101,000 dairy cows this month and announced another cull on July 10. This may help reduce the supply of milk, but it only fattens the supply of beef.

Uncertainty looks set to continue. John Lawrence of Iowa State University argues that the industry's woes are not just cyclical. Support for biofuels is pushing up grain prices. The USDA has predicted that production of meat from all the main livestock and poultry categories will decline this year which will eventually lead to higher prices, says Lawrence.

But for now, prices are dropping. Ironically, the one source of relief for farmers--a dip in feed prices, thanks to an unexpectedly good planting season--may bring further trouble, by giving them the financial leeway to delay culls. The longer it takes to cut supply, the longer farmers will remain in the red.