A44-Lancastcr Farming, Saturday, March 20, 1999
COLUMBUS, Ohio - With
operation losses of $2.6 billion,
1998 was the worst year to be in
the hog business since the Great
Depression, said Ohio State
University agricultural econo
mist Brian Roe.
“Once inflation is taken out,
hog pnces in 1998 were 30 per
cent lower than they were dur
ing the Depression,” Roe said
“That number is a little deceiv
ing because with modern tech
niques and efficiency it’s also
cheaper to produce a hog than it
was back in the ’3os, but that’s
still a pretty telling figure.”
Hog pnces typically rise and
fall on a four- to five-year cycle,
he said Hog producers see
themselves and others making
good profits, so they expand
their operations. Soon, too many
hogs are produced and pnces
begin to drop As prices fall,
some producers either decrease
their herd or get out of the busi
ness entirely This lowers hog
production numbers, prices
again begin to rise and the cycle
starts all over again
The problem in 1998 was pro
ducers responded more than
normal to strong profits in 1996
and 1997 Some producers, fear
ing environmental restrictions
on future expansion, increased
Why the Hysteria Over Hog Prices?
their operations faster than they
typically would have, Roe said
So instead of building one new
barn, they built two or three.
At the same time, meat pro
cessing plant closings and labor
strikes, especially in Canada,
diminished the ability of hog
processors to handle the large
quantities of pork being pro
duced.
“We not only produced more
hogs than normal, but we also
went over the industry’s capaci
ty to slaughter hogs,” Roe said
“It was kind of a confluence of
several unfortunate things on
top of a natural dip in the price
cycle ”
As a result, hog pnces plum
meted from $5O to $55 per hun
dred pounds of pork produced
(cwt) in 1996 to a low of around
$lO per cwt. just before this past
Christmas. For average hog pro
ducers, the price they received
at market was far less than
their production costs, Roe said.
For example, many hog pro
ducers run what’s called a fin
ishing operation buying
young pigs at about 50 pounds,
feeding them for four months
until they grow to about 250
pounds, and then taking them to
market. The average finisher
who bought a 50-pound pig in
July ’9B raised it to 250 pounds
and sold it in November ’9B
would have had the following
production costs per pig. $l6 85
to buy the pig initially, $lB 50
for feed corn, $20.80 for soybean
meal and other feed supple
ments, $2.50 in labor charges,
$1.75 for transportation to the
farm initially and later to mar
ket, $12.90 in fixed costs such as
building upkeep, and $B.lO in
miscellaneous costs such as vet
erinarian services. All together,
the production cost to raise a
feeder pig at that time was
$81.40.
If the feeder pig in the exam
ple was sold in November just
before Thanksgiving, it would
have brought about $l7 50 per
cwt. at the marketplace. At 250
pounds, the average producer
would have gotten back only
$43.75 resulting in a loss of
more than $37.50 after produc
tion costs.
“And that wasn’t the worst of
it,” Roe said “Just before
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Christmas when prices were
about $lO per hundred pounds,
producers were only getting
about $25 per animal and losing
$5O to $55 on each pig. If you put
a couple zeros behind that for
producers selling several hun
dred pigs, it really starts to
hurt.”
However, average producers
who sold one her per week from
Jan 1, 1996 through Nov. 30,
1998, are still on the plus side in
terms of total profit during that
time span because of strong
prices received in 1996 and
1997, he said But they are only
$l,OOO above the break-even
point, with the losses of
December and January includ
ed, total profits since January
1996 would drop between $2OO
and $3OO.
Things are finally starting to
get better. Current prices are
back to the low to mid $2O per
cwt. range, and most people
believe that between April and
June of this year prices will
return to break-even amounts in
the mid s3os, Roe said.
“Less efficient operations and
those with financial problems
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before the low prices hit have
left the hog business, moving
supplies back to more manage
able levels,” he said. “And pro
cessing facilities ran a lot of
overtime and weekend shifts to
catch up with the large sup
plies,”
Those producers who ha\e
survived either cut costs as
much as possible, got rid of less
efficient animals or relied on
another source of income. Some
producers may benefit from
recently introduced federally
funded programs that will
extend operating loans to help
them get through the particular
ly hard part of the cycle, Roe
said.
“Prices are very cyclical and
eventually they rebound,” he
said. “Producers who are very
efficient and committed will find
a way to stay in the industry”
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