Iowa Hog Producers Looking at More Red Ink

ISU economist says situation will force some Iowans to get out of pork production.

Hog producers will continue to lose money in 2008 as USDA's quarterly hogs and pigs survey released at the end of March showed an increase in hog numbers on U.S. farms and on Iowa farms. "We're looking at big-time red ink," says John Lawrence, Iowa State University Extension economist. "There will be some producers who opt out of hog production."

Particularly, he's referring to farmers who are diversified in crops and hogs and can sell their corn and soybeans at today's prices for a profit, rather than feed the corn to hogs and lose money. Lawrence says Iowa hog producers can expect more losses for the rest of this year and first quarter of 2009. Feeding high priced corn to low priced hogs doesn't make money.

The March 28 USDA report said the number of hogs on U.S. farms as of March 1 totaled 65.9 million, 7% more than a year ago, notes Lawrence. Also up 7% from last year was the number of hogs headed to market, at 59.8 million.

Iowans have lost money for 5 months

Iowa hog producers had 18.7 million hogs on farms as of March 1, up 11% from a year ago. The number of market hogs in Iowa totaled 17.6 million, also an 11% increase from a year ago. No other hog producing state came close to matching No. 1 Iowa's increase in hog numbers. North Carolina, the No. 2 hog producing state, had a 6% increase in its total hog inventory to 10 million hogs.

Hogs used for breeding purposes totaled 6.14 million on March 1, an increase of less than 1% from a year ago.

Lawrence estimates that Iowa hog producers have lost money on each hog sold for five straight months. "Some say it's worse than 1998-99," he says, referring to the record low prices for hogs 10 years ago. Back then corn and soybean meal prices were much lower than they are now, he notes, and the cost of producing hogs is a lot higher now.

Hog production is expected to drop

"Hog producers are hitting the brakes pretty hard now this report shows, in terms of reducing breeding plans and holding the line on the breeding herd," says Lawrence. "The trajectory is for hog production to drop." He says it will be the end of 2008 or sometime in early 2009 before there is a reduction in the number of hogs sent to slaughter and hog prices improve.

It will be critical for pork exports to continue to grow and for U.S. pork consumption to remain high, points out Steve Meyer, economist with Paragon Economics at Adel, Iowa. Even at that, hog producers will now be looking at carcass-weight cash, negotiated prices no higher than the mid-$60s this summer. Quarterly averages will likely barely reach that level in the second and third quarters of 2008 and will fall near $60 per cwt., carcass, in the fourth quarter.

What is troubling is that things could get worse. Feed prices could get higher, as USDA's Planting Intentions Report issued March 31 indicated U.S. farmers will likely plant 8% fewer corn acres in 2008 than were planted in 2007. Soybean acreage nationally is projected to increase by 17.5%. So that would lessen the cost of bean meal. But the big cutback in corn acres will boost the price of corn more, a worrisome prospect for livestock producers.

Fewer acres will push corn price higher

Feed prices for livestock producers will likely go higher in 2008, says Meyer. Large beef supplies are coming to market and chicken and turkey production remain well above year-ago levels. Consequently, there will be substantial competition for pork in the marketplace. The slowdown in the U.S. economy could affect demand for meat, forcing consumers to trade down in their food choices, giving lower-priced poultry an advantage.

What can hog producers do? Get those hogs to market as soon as they reach a weight that will not result in a price discount. Feed prices are already high enough and hog prices low enough that the last few pounds are getting less and less profitable - to the point of perhaps losing money. However, even if everyone sells lighter hogs, the opportunity for a profit remains limited, says Meyer. That's because the U.S. pork packing industry is still running near slaughter capacity each week - a lot of pork is coming to market.

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