The Record Low Hog Market
Livestock Update, January 1999
Allen F. Harper, Extension Animal Scientist, Swine, Tidewater AREC
It is very likely the most depressing time for hog producers in the history of commercial swine production. Prices quoted for the week ending December 11 indicated carcass prices in the eastern corn-belt of $21.28/cwt. and $23.18 in the mid-south. These carcass prices equate to live weight prices of $15.53 to $16.92/cwt. Current losses per finished market hog (conception to market weight basis) are estimated at $56.00 or about $22.4/cwt. Producers raising hogs under contract for other owners are somewhat insulated from this market. However, contract growers do have legitimate concerns as to how long their contractor can withstand the poor market. Fortunately, there have been no reports of significant contract defaults in the Virginia region. Nevertheless, it is truly a crisis situation and no producers, industry leaders, economists or others can seem to find reason for a major market correction, at least in the near term.
What are the contributing factors in this disaster? Production level is the major contributor. Since the last full week in September, hogs have been coming to market for federally inspected slaughter at a rate of over 2 million head per week. The only exception was the short Thanksgiving Holiday week. The week ending December 13 including Saturday's kill set a new record of 2.231 million hogs slaughtered. This rate of slaughter over such an extended period of time is unprecedented and it illustrates the large production capacity that has developed in U.S. pork production.
A second contributing factor is that some slaughter capacity that would have been available to help deal with the large supply of hogs was lost during the past two years. For example, the Thorn Apple Valley plant near Detroit, Michigan stopped slaughtering hogs in 1998. This removed 60,000 head per week of slaughter capacity potential from the industry. Smaller plants in Moultrie, Georgia and Worthington, Indiana have closed recently as well. Existing plants are running at high rates with some Saturday shifts but the loss of even a few plants has impacted the industry's ability to deal with the large supply.
Another factor is that there is an over supply of hogs in other parts of the world as well. For example, European producers are experiencing very low prices at this time. Producers in the United Kingdom are being hit especially hard because of low prices and new government animal welfare regulations that will mandate changes in the way sows are housed and fed on hog farms in Great Britain.
And finally, our opportunity to export more pork products from the U.S. has been hampered by the poor Asian economy. Although exports of U.S. pork have improved in recent years, the weak purchasing power of the Yen and other Asian currencies has slowed export expansion and prevented major relief for the excess pork supply.
Appeals are being made by the National Pork Producer's Council to enhance efforts to export pork from the U.S., to increase purchase of pork for use in school lunch programs and to stop importation of hogs from Canada (about 4 million per year) destined for slaughter in the U.S. The North Carolina Pork Producers Association is petitioning the N.C. Department of Environment and Natural Resources to allow the Smithfield Foods Tarheel, N.C. plant to increase it's weekly kill from 144,000 head to 172,000 head. All of these items could help but the hog market economists indicate that until the number of hogs available for slaughter backs off to less than 2 million per week, price relief cannot be expected.
What can producer's do? Obviously there is no single management item or group of practices that can be implemented to result in profits during this extremely low market. During this time the producer's goal is to do the things necessary to keep financial losses as low as possible while waiting for profitable prices to return. Some may find it necessary to exit the business, but this decision should be made carefully and objectively, preferably with sound economic advice from a reputable advisor. Some ideas to consider in dealing with the current financial situation are as follows.