Pork industry in peril
WORTHINGTON -- There is a vicious cycle running through the agricultural industry today, and it could be months, perhaps years, before any relief is in sight.
While consumers complain about the high cost of food in the grocery store and the pain at the gas pump, many have pointed fingers at the American farmer and blamed him for their troubles. What they don't realize is the American farmer is experiencing those same, higher bills.
Across Minnesota and nationwide, livestock producers are in a difficult situation. The cost of feed grain has driven up their expenses -- to the point where many, particularly in the hog industry, are opting to get out, or at least take a break until the tough times pass.
David Preisler, executive director of the Minnesota Pork Producers Association, said there has been liquidation in the swine industry across the country. Just how many are getting out is anyone's guess.
"Without a doubt we have got production costs that we have never seen before and literally, in the last 12 months, feed costs have more than doubled," Preisler said. Total costs to produce a pig have increased about 50 percent from a year ago, due primarily to rising corn prices.
Earlier this spring, the industry struggled not only with the high feed costs, but a drop in market prices at processing facilities around the country.
At one point, pork producers were losing an average of $30 to $40 per head this spring, according to Larry Liepold, a rural Okabena farmer and member of the National Pork Producers Council board of directors.
Though the pork price has rebounded some, it still isn't enough for producers to see a profit.
"I heard a comment today that the manure (in the pit) was more valuable than the pigs above it," said Liepold. "Actually, the hogs probably came out as a wash."
The value of hog manure is one of the reasons some producers are willing to bite the bullet on their swine profits and stay in business.
"With fertilizer inputs the way they are, manure has got a great deal of value," Liepold said.
Alan Langseth, feedlot officer with the Nobles County Environmental Office, said he has seen only a slight slowdown in the number of requests for new swine barns to be constructed in the county. He, too, points to manure as one of the reasons pork producers are sticking out the tough economic times.
"We're still seeing a fair amount of interest in livestock barns," he said. "In the last year and a half, a lot of (producers) have been going with the idea that they were going to be using the manure as fertilizer. That's been a big part of it -- utilizing (the value) in his cash flow with the high price of other fertilizers."
Langseth also attributes some new construction in the hog industry to young farmers trying to get a foot in the door.
"With the high price of land, they can't go out and buy land, but they can get financing to put up a hog building," Langseth said.
While the picture may be rosier in Nobles County, Preisler said that on a grander scale, there has been a tremendous slow down in new construction.
Monitoring the markets
Preisler said the pork market is on a "little bit" of a roller coaster this spring, price-wise. Though there was a period of losses, May turned out to be a pretty good month for sales.
"In fact, we set some record prices in May," said Preisler. "But, it's trailed off again now.
"Those May prices basically got us to break even because the costs have escalated so much," he added.
One of the things benefiting the industry is the continued strength in the export markets. Preisler said the industry is currently exporting about 22 percent of all the pork produced in the United States -- an increase of more than 50 percent from a year ago.
Exports could rise even higher, but there are several issues to keep that from happening. Preisler said there is a shortage of refrigerated containers to ship product overseas, and with recent flooding in parts of Iowa, some processing facilities have had to completely shut down. While the closings are hoped to be quite temporary, it still cuts down on the availability of product for export.
With the price of corn nearing $7 per bushel, the pork industry isn't the only one to suffer.
"When you start putting corn at that price, it gives fertilizer a reason to go up, land prices a reason to go up," said Liepold. "You've got two things that are going to happen -- it's going to crash like a rock or it's going to get to a new plateau that's not going to be (affordable for some to be in farming)."
With the livestock industry, ethanol plants and export markets all demanding more corn, sooner or later something has to happen.
"The flat reality right now is, with the current crop conditions that we have, there is no way we will be able to produce the same of all three," said Preisler. "Someone is going to have to blink or cut back.
"That's not even a question of price, that's just plain availability," he added. "At this point, it's probably leaning more toward the livestock side."
Liepold said in his own operation, he has decided to cut back a little on his hog numbers to help ease feed costs.
"We're going to see quite a bit of that," he said. "(Yet), if you own the product and you still own relatively inexpensive grain -- if you're not having to buy it off the cash market -- you're actually doing quite well."
Liepold, who earlier this month took part in an Operation Main Street 2.0 training in Kansas City, Mo., said a man he met from Missouri had 4,000 pigs available and no one wanting to feed them.
"Pigs are $8 a head and transportation is another $2 (per head), and no one wants to take that risk," Liepold said.
Rocky road ahead
With some pork producers getting out of the industry and others cutting back on production, Liepold said consumers will likely see a rise in the price for pork within six to nine months -- and that has him concerned.
"When we start cutting sows and that product is not going to be there, the price is going to go up. We're going to run into a situation, I think, where we outprice ourselves. It's gotta happen," Liepold said. "The price of hogs is up right now. It hasn't moved a lot in the grocery store, but it will."
If there's one message Liepold wants to give consumers, it's to buy pork now.
"Right now, pork is a great bargain," he said. "If you've got freezer space, maybe you ought to fill it. We're trying to protect ourselves ... and I think the consumer can do that too."
Liepold said he heard analysts in February or March saying that the market situation for pork producers could be rocky for 14 to 18 months. At Pork Expo last month in Des Moines, Iowa, talk was it could be 14 months to two years before input prices start to come down and prices stabilize.
"There's a million things that can change profitability," said Liepold, citing producers getting out of the industry, world markets and pork processing plants among the variables.