It’s the perfect storm for America’s pork producers—high feed costs and low prices paid to farmers. That combination could lead to the largest hog supplies in five years, pushing hog prices sharply down. AgDay National Reporter Tyne Morgan stopped in the top pork producing state of Iowa to see how record losses is fueling one producer’s management decisions.
As combines roll across the Midwest and the reality of a sobering corn crop hits the bins, pork producers are left just trying to survive.
"Not only are we looking at hog prices dropping possibly down in the low 70s for a lean hog price going into the fourth quarter, but along with that, a lot of the feed going into those hogs has a market value of upwards of $8 or more," says Iowa State University Livestock Specialist Shane Ellis.
Ellis says this double whammy is creating a collapse of margins.
"And some of those losses we’re seeing out there, we’re expecting some of the heaviest losses that we’ve had in recent history," Ellis says.
While producers usually see the lower prices in the fourth quarter, this year will be more extreme. This has producers like Todd Wiley crunching the numbers to prepare for what’s to come.
"When I take all the numbers and put them together, we’re losing right at $57 per pig today," says Wiley, a Walker, Iowa, pork producer.
Neither Wiley nor Ellis see that changing anytime soon.
"Where producers need a breakeven price of 95 or even a full $1, they’re looking to see somewhere in the low 70s," Ellis says.
"So, we’ve got a long way to go to keep our money together, let alone make any margin," Wiley adds.
This is forcing some producers to make a difficult decision—do they even produce or finish out hogs when margins are looking so tight?
"For many operations, they’re pulling back into what you’d call survival mode, maybe cutting back on their sow numbers and holding back as much as they can, because they know for every hog they’re producing, they are going to be losing a tremendous amount of money," Ellis says.
Wiley says while pork producers have been through some tough times, there’s no real comparison to this year’s forecast for record losses.
But, Wiley thinks things will finally take a turn for the better in June of 2013.
"Now unfortunately, since February, we haven’t had a decent opportunity to crush our pigs at the margins we’d like to have, and so we’re a little bit open after the first of the year," Wiley says. "I’m anticipating having to live through this for at least six months until June, when we get into hog prices that are substantially better, hopefully."
Wiley says if there’s one thing he’s learned, it’s that pork producers are resilient and he thinks the majority of producers will survive.
"I think for the most part we’re better managers than we were," Wiley says. "I think for the most part we take care of business a little further down the road than we used to. And so I’m hopeful that the damage, while it’s going to be excruciating while it happens, I’m hopeful it’s going to be relatively short-term."