Iowa hog producers, still stuck in a financial loss situation that has gone on for two years, cheered the news last week that China has agreed to lift its flu-inspired ban on the import of U.S. pork.
"If we can get the Chinese to eat more of our pork, that would be great," says Phil Calmer, who produces hogs near Manson in northwest Iowa. China was the No. 3 buyer of U.S. pork exports last year behind Japan and Mexico. China's purchases totaling $690 million were the fastest growing segment of U.S. pork exports.
This year China's purchases are down 50% because of the ban, which China imposed in May despite assurances from the U.S. that H1N1 flu couldn't be contracted from eating pork.
Welcome news, but hog producers are still losing money
"China's intent to remove its H1N1-related ban on U.S. pork marks an important step forward in cooperation between the countries on agricultural issues," U.S. Secretary of Agriculture Tom Vilsack said in a statement. No date has been set for lifting the ban. "Since this is a new disease, it took time to understand it," said Sun Zhengcai, China's ag minister, in his statement.
Some hard feelings by Iowans about the ban were expressed by Iowa Secretary of Agriculture Bill Northey. "This announcement is welcome, but it is no time to celebrate," he says. "Pork producers continue to lose money and this unjustifiable ban has only made matters worse over the past six months."
Bans by China and others on imports of U.S. pork wasn't justified
Iowa Sen. Tom Harkin also points out: "Iowa pork has been safe to eat the entire time of this ban. China's ban on U.S. pork products over the last six months has just added to the financial losses suffered by farmers in our state. The media has also mistakenly kept referring to the H1N1 virus as the swine-flu, which didn't help. That just causes confusion among consumers of pork."
The bans on exports by Russia, since lifted, and China further burdened an already miserable market for U.S. pork producers. Futures prices dropped from 95 cents per pound last year to less than 50 cents by the end of this summer. Cash prices fell to as low as 35 cents per pound. Also, while hog prices were declining, feed costs were climbing as corn and soybean prices rose—putting an even deeper crimp on hog producer profitability.
Signs of a turnaround in hog prices coming
In recent weeks, hog prices have shown signs of a recovery. Hog futures prices have edged up from 45 cents per pound in late August to 57 cents per pound last week, and cash prices have risen from 37 cents per pound to around 42 cents per pound.
This price rise is hopefully the start of an uptrend and it is credited to a gradual reduction of swine herds and increased consumer demand stimulated by discounted pork sales at supermarkets. Hy-Vee Inc., a grocery store chain headquartered in West Des Moines, reported last week that aggressive discounting of pork prices in the meat case increased sales tonnage of pork in October by 25% over the same month a year ago.
Sam Carney, a hog producer from Adair and president-elect of the National Pork Producers Council, says China ending its ban and the recent uptick in prices hold the possibility that hog producers can end the two years of financial losses. "If corn prices can remain reasonable, and I think they will, then things look a little more promising by next summer for swine producers," says Carney.
Big 2009 crops will mean more moderate feed cost
Ron Juergens, who raises hogs in confinements near Carroll in western Iowa, says the Chinese announcement is good news. "We can only hang on for so long in the hog business. We've been losing money on every hog marketed for most of the past two years," he points out. "China's announcement that it intends to buy more pork is good, but we'll have to wait and see if it really comes true."
Juergens agrees with Carney's observation that continued moderate prices for corn in the range of $3.50 to $3.80 per bushel will help pork producers. Corn prices at one point last year were $7 per bushel. "Corn prices went so high that no one could make money," says Juergens.
"This harvest of 2009 is a big one and I'm expecting corn and soybean prices to stay reasonable and that will help hog producers on the feed cost side of the profit picture."
Sows now produce more pigs, adding to pork supply
For the past year or more, economists have told hog producers they need to reduce their inventories by as much as 10%, to decrease the pork supply and boost prices. But those efforts have been hampered by the contract obligations of confinement operations and also the increasing productivity of sows.
Sows that averaged 9 or 10 pigs per litter were considered exceptional 20 years ago. Today many sows can average 12 or more pigs per litter, sometimes more. Also, better nutrition and improved health of hogs has reduced the death loss of hog operations. To get prices up we're going to have to bring production down and that's tough to do because of sow productivity, says Juergens.
Domestic demand must also be stimulated to help reduce the pork supply, he adds. "We're coming into the holiday season, the ham consumption season, and that always helps add some hog price improvement."
China's lifting of ban on U.S. pork will help
"China's announcing that it is lifting its ban on imports of U.S.-produced pork is welcome. This is a huge step toward helping Iowa's long-suffering hog industry recover from ongoing, severe financial losses," says Congressman Leonard Boswell, D-IA.
He says, "China's unfounded ban on U.S. pork products had further devastated an industry that was already in financial turmoil. Iowa hog producers and their families can breathe a little easier now that our country's third largest pork customer is accepting U.S. pork again."
Pork producers in the U.S. have lost an average of $22 to $23 per hog over the last 24 months. Since September 2007, the industry has lost more than $5.3 billion, or 66%, of its equity. "That is a huge, huge financial hit that pork producers have suffered and we've seen a number of pork producers go out of business," says Boswell.
Markets for U.S. pork exports
The top markets for U.S. pork exports in 2008:
1) Japan $1.5 billion
2) Mexico $691 million
3) China (includes Hong Kong) $690 million
4) Canada $558 million
5) Russia $476 million
Total U.S. pork exports in 2008: $4.9 billion
U.S. pork exports this year through August:
Japan $1.06 billion +6% change from year ago
Mexico $487 million +17%
Canada $328 million -10%
China $268 million -50%
Russia $183 million -39%