Hog farmers succumbing to high corn prices
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Linden Olson is standing in a barn that's holding a thousand young pigs near the town of Brewster. It's a hot day, and to stay cool the pigs are mostly sleeping as large fans move the air around. These are some of the last pigs Green Prairie Coop will sell. Its board voted last month to close the business. Olson is one of the 70 or so farmers that own the southwest Minnesota coop. He said it was either liquidate now or face possible bankruptcy down the road.
"The feeling of the board was they could not continue to carry these pigs to market and lose $20 to $30 a head and sometimes even more," said Olson. "And take the owner's equity down with them to where there wasn't too much left."
The main problem is high prices for corn, the hogs' main feed. The coop sells about 25,000 hogs a year to packing plants. Olson said Green Prairie began losing money last October, as corn prices increased. He said the pace of the losses was unsustainable--as much as $750,000 a year. He said hog farmers nationwide are seeing similar losses.
"In early June there was an estimate that the swine industry had already lost $2 billion, that's with a 'B', and now in July I'm sure that figure is $2.5 to $3 billion and it doesn't seem to want to stop," said Olson.
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One of the main culprits for high corn prices is the rapid increase in ethanol production. As much as a third of the U.S. corn crop could go to ethanol this year. In the growing food versus fuel debate, Olson said simply 'food comes first'.
"I don't think that we can continue in this country to feel that we can take grain ethanol, and use it to drive our SUV's and let other people in the world go hungry," said Olson.
A recent U.S. Agriculture Department report shows the impact high corn prices are having on hog production in Minnesota.
As of June first, the number of breeding hogs in Minnesota was down five percent from a year ago, a decline of some 30,000 animals. Nationwide, though, the drop was not as dramatic. Sow numbers were down just one percent. It's not clear why Minnesota producers are selling their breeding stock faster than the national pace.
In any case, most market analysts believe the pace of the national sell-off has increased substantially since the June report. That's because since then Midwest flooding has pushed corn prices even higher.
We're going to have prices in the grocery store that are probably going to be 40 percent to 50 percent higher for pork than they are now.
Jason Golly of Lynch Livestock in northeast Iowa said many hog farmers are selling breeding pigs as they cut back production or leave the business. Golly said he's seeing about 10 percent more sows come on the market per week compared to last year. He said it's mainly smaller hog farmers that are feeling a financial squeeze and selling out.
"And the reason they're giving up is if they're producing corn, they want to just sell their corn, preserve their equity," said Golly.
Golly predicts as many as half of the small-scale hog producers may leave the business. If that happens, that could mean more of the nation's pork production will be in the hands of the very largest hog companies. Consumers would feel the impact of such changes.
Southwest Minnesota hog producer Linden Olson predicts with fewer sows available, the size of the nation's hog herd will decline. He said eventually that could mean more competition and higher prices for the available animals.
"My concern is that we're going to cut back production too far," said Olson. "We're going to have prices in the grocery store that are probably going to be 40 percent to 50 percent higher for pork than they are now."
Olson is not alone in predicting higher prices. One analyst predicts hog prices will explode once farmers are finished reducing the size of their herds. Looking ahead even further, Olson wonders if fewer hogs could reduce the U.S. share of the world market. He said when hogs increase in price, it could give foreign pork companies an opening to increase sales in the U.S. and around the world.
That's all in the future. Right now the big problems facing farmers are high corn costs and low hog prices, and it's not clear when that financial equation will turn around.
