March 3, 2004

 

 

US Hog Producers Hurt By Soaring Corn Prices

 

Hog farmers in the United States will be adversely affected by the high price of corn and other feed ingredients.

 

With the majority of producers struggling in recent times after years of losses or thin profits, the exponential increase in the cost of hog feed could drive them over the brink.

 

Prices for corn, a key feed component, rose to a six and a half year high while prices of soymeal, a protein supplement, remained unusually high on anticipated supply shortages. Corn is about $3.00 per bushel, compared with $2.30 a year ago, and soymeal is about $280 a ton, up from $178 a year ago.

 

"I think hog farmers are really vulnerable, especially large corporate ones," said Chris Hurt, agriculture economist at Purdue University.

 

The hog industry has yet to fully recover from 1998, when hog prices dropped to 50-year lows such as the $8 per cwt recorded in Iowa. There were small profits in 2000 and 2001, but losses followed in 2002 and 2003, analysts said.

 

Current hogs are trading at about $45 per cwt and returning small profits. It is costing about $42 to produce them, economists said.

 

The profits in 2004 have been largely been due to strong pork demand as mad cow disease and bird flu cases have pushed some consumers and foreign buyers away from beef and poultry.

 

A further rise in corn prices looks increasing likely over crop problems in the summer. Should this happen, feed prices will rise further and the consequences for hog farmers will be dire, said Chris Hurt, Purdue University economist.

 

"The chance for catastrophic losses has increased substantially," Hurt said.

 

Last week, The Des Moines Register newspaper reported that Iowa-based Heartland Pork, the nation's 13th-largest hog producer, was wrestling with serious financial problems and had put itself up for sale. Heartland owns 61,000 sows in three Midwest states, industry sources said.

 

"Due to the continued depressed hog market, we are exploring opportunities to bring new financial partners into our business," Heartland President Bruce Rastetter said on Monday.

 

Economists and Midwest hog dealers said Heartland may be one of several corporate producers that are struggling.

 

"I don't think Heartland is alone. I think there are other big producers out there in financial trouble," said John Lawrence, agricultural economist at Iowa State University.

 

The nation's largest hog producers include publicly traded companies, such as top producer Smithfield Foods Inc. and No. 3 producer Seaboard Farms, a unit of Seaboard Corp. Many others are privately held, such as No. 2 Premium Standard Farms and No. 5 Cargill Inc.

 

These largest firms appear to have the resources to survive, but smaller ones may not, economists said.

 

As some of the large hog producers go out of business, however, there will be others willing to buy the facilities and keep hogs in the barns, the economists said.

 

Small hog operations have been going out of business for years. But the number of hogs has not changed significantly because they have been replaced by large-scale, more efficient corporate farms.

 

In 2002, there were only 73,000 U.S. hog farms, down from 248,700 in 1992 and 482,190 in 1982, according to USDA.

 

"One of the things that we expect to see is continued consolidation, or acquisition of one big firm by another big firm," said Ron Plain, University of Missouri agricultural economist. "You can buy a lot of these existing structures for 50 cents on the dollar."

 

Giants like Cargill, Smithfield Foods or even crop processor Archer Daniels Midland Corp could buy some of these hog operations, said Purdue's Hurt.

 

"There is money out there," Hurt said, noting that the issue for potential buyers is "how cheap can I get it?"