Hog Industry Issues Addressed At Upcoming Conference

October 29, 2002

COLUMBUS, Ohio - U.S. hog producers have experienced a dismal year in profits, with a massive sell-off spurred by low pork prices, high corn prices and fluxes in international markets. And the industry outlook going into 2003 doesn't look much better.

Ohio hog producers debating whether they should stick it out until the industry recovers or exit the business may find information presented at the 2003 Agricultural Policy and Outlook Conference helpful in making a management decision. The event, sponsored by the Ohio State University Department of Agricultural, Environmental and Development Economics, will take place at various locations throughout Ohio from Nov. 18-Dec. 16.

Brian Roe, an Ohio State Extension agricultural economist, is one of several presenters who will be discussing agricultural issues ranging from the 2002 Farm Bill to livestock and grains outlook.

"I will be looking at three different areas: issues over the past year and the future outlook for the hog sector in Ohio and the United States, the same type of analysis for the beef sector, and finally some of the issues surrounding new large dairies in Ohio," said Roe. "Of all the issues, I'd say nationally the hog sector is under the most duress. The hog industry has a tendency to have a really good year, then a mediocre year, then a bad year and a year of recovery. So every four years we have this cycle and this year happens to be a bad year." Roe said that hog producers have again begun to suffer losses due to a variety of events that have taken place this year - a reminder of the historic losses suffered during the 1998-99 season.

"The problems began last spring when the United States was unable to export poultry into Russia after a trade dispute with the Russians. This saturated the market with extra meat, driving down prices of pork, beef and poultry at a time when producers expected to receive high prices," said Roe. "Additionally, higher corn prices also drove up costs and drove down profits. At the same time there was an increase in the number of feeder pigs coming over from Canada. This created a very large supply of hogs coming into the market late in the summer of August and September of this year.

"You have this psychology develop between low spring prices and projections of a huge fall slaughter run that could potentially push prices down even lower," said Roe. "So there was a massive liquidation of the sow herd during the late summer from large producers - we're talking with 5,000, 10,000, 20,000 sows - that deduced that they weren't going to be making much money and got out of the business." Roe noted that this season contrasts with the hog crisis of 1998-99, which saw mainly small producers exit the industry.

The massive summer sell-off, said Roe, has resulted in most U.S. and Ohio producers either losing money or just breaking even. About 15 percent of Eastern Corn Belt producers, Ohioans included, were spared the full brunt of the lower prices because they are under contractual agreements with slaughterhouses that shield them from falling prices. Around 25 percent either sell hogs in traditional market places or negotiate for a price at the time of sale. The majority of hog producers (60 percent) are tied to the current price the market offers.

"Over the past year, Ohio producers have averaged $34.50 per hundred weight for their hogs. They'd have to make about $37 or $38 just to break even, and with the increase in feed prices over the summer, the break-even price will be $42, $43," said Roe. "So the market will have to become $5 stronger just to cover costs, which is just added pressure. I think many producers are feeling trapped because they may have payments due and they are not bringing home any profits from the hogs they are selling." Roe said the outlook for the hog industry going into next year doesn't look very promising either, particularly during the winter quarters. Projections, depending on what producers pay for their feeder pigs, have average returns varying anywhere from a $3 profit to a $3 loss per hundred weight.

"If a producer can get feeder pigs fairly cheap for the next year, the model is projecting a $3.25 per hundred weight of profits above cash costs," said Roe.

The numbers, broken down by quarter, place fall quarter projections at an $8 per hundred weight loss if producers pay $32 for feeder pigs. Producers will come close to breaking even from January-March and by the April-September quarters, producers will average $6 per hundred weight of profits above cash costs.

"This is telling me it's going to be another tough year for producers. A lot of people won't be able to wait until the market recovers," said Roe. "The good news is that the sell-off involves a lot of the breeding herd which means there will be fewer pigs and prices will recover. Those who can remain through the tough times will reap the benefits during the good times when the market does recover." Below is a schedule for the 2003 Agricultural Policy and Outlook Meetings. For more information, contact Stan Ernst at (614) 292-6421, or ernst.1@osu.edu, or log on to http://aede.osu.edu/programs/outlook.

* Nov. 18: Memories Party Center, Wooster, Ohio; contact Dianne Shoemaker at (330) 263-3831 or shoemaker.3@osu.edu.

* Nov. 18: Main Street Restaurant, Louisville, Ohio; contact Dennis Weilnau at (330) 497-1611 or weilnau.1@osu.edu.

* Nov. 19: Dutch Valley Restaurant, Sugarcreek, Ohio; contact Chris Zoller at (330) 339-2337 or zoller.1@osu.edu.

* Nov. 25: Northwest State College, Archbold, Ohio; contact Florian Chirra at (419) 636-5608 or chirra1@ag.osu.edu.

* Nov. 26: Leon's Family Restaurant, Bowling Green, Ohio; contact Alan Sundermeier at (419) 354-9050 or sundermeier.5@osu.edu.

* Dec. 4: Marie Hamilton Eastern Star Hall, Circleville, Ohio; contact Mike Estadt at (740) 474-7534 or estadt.3@osu.edu.

* Dec. 4: Southern State Community College, Hillsboro, Ohio; contact John Grimes at (937) 393-1918 or grimes.1@osu.edu.

* Dec. 5: Greene County Extension Office, Xenia, Ohio; contact Jerry Mahan at (937) 454-5002 or mahan.2@osu.edu.

* Dec. 5: Champaign County Community Center Auditorium, Urbana, Ohio; contact Barry Ward at (937) 484-1526 or ward.8@osu.edu.

* Dec. 10: Dick's Steak House, Kalida, Ohio; contact Glen Arnold at (419) 523-6294 or arnold.2@osu.edu.

* Dec. 10: Romer's Catering, Celina, Ohio; contact Joe Beiler at (419) 586-2179 or beiler.1@osu.edu.

* Dec. 10: Greenville Inn, St. Rt. 571; contact Steve Foster at (937) 454-5002 or foster99@ag.osu.edu.

* Dec. 16: Prospect Room at Marion County Building, Marion, Ohio; contact Bill Hudson at (740) 223-4040 or hudson.59@osu.edu.

Author(s): 
Candace Pollock
Source(s): 
Brian Roe