Tough market, ‘bleeding’ industry mark 2023 Pork Month

WASHINGTON — It is not an easy time to be in the business of raising swine.

Far from it, in fact. A September report from the National Pork Producers Council (NPPC) found the average hog farmer was taking a net loss of $40 every time they sold a pig. Multiply that by the 5,000+ inventory reported by almost three quarters of Iowa hog farms, and the result is an industry that producers describe as “bleeding.”

Carcass prices aren’t necessarily the problem. Iowa State University Associate Professor of Economics Lee Schulz said swine were set for roughly their seventh highest year on record in terms of market prices paid for the animals.

Input costs, however, have grown far beyond that level.

“According to the Iowa State University model for farrow-to-finish production, costs increased 50% or $32/carcass cwt in 2022 compared to 2020,” Schulz said in an email. “That translates into an increase of roughly $66 per head in just two years. Costs increased another 2% in 2023 compared to 2022.”

Most of that change comes from the price of feed, according to producers’ anecdotes and industrywide data. While rising costs of insurance, utilities and labor haven’t helped matters, all are dwarfed by animal feed’s share of the pie: around 63% of pork production expenses, according to an NPPC report in 2021.

While grain prices have fallen considerably from record highs last year, corn and soybean meal remain above their 2014-2019, pre-COVID averages according to John Greiner, a commodity broker and crop insurance agent at Kat’s Grain in Washington. He said several international developments since then factored into the trend.

“The reason they went so high was, lower U.S. crops the last two years … and the Russian invasion of Ukraine,” he said. “There was the uncertainty of whether or not the number three country in the world was going to be able to supply exports. Speculators got in here and really drove the prices higher.”

The conundrum puts farmers in a tight spot. Unlike in manufacturing-based industries, hog production physically cannot be shut down overnight.

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There is likely not a producer on the planet willing to furlough their workers, break every delivery contract, and take the losses of halted revenue on the chin as they wait for the market to improve.

Even if there were someone interested in such an unwise financial decision, they’d still have over nine months worth of pigs on the way from the day they made that call. A sow generally spends “three months, three weeks and three days” gestating before giving birth, an adage in the industry that’s usually accurate. After that, the pigs it spawns won’t reach market weight and maturity for at least six months.

“If you’re building widgets of any kind, and the cost of making a widget is more than you can sell the widget for, in manufacturing, you can turn the lights off,” said Tork Whisler, a contract swine grower north of Washington, and co-host of the podcast BarnTalk. “You either stop production until the price gets better, or you just stop production because it’s no longer profitable … but you can’t just say, ‘We’re going to shut the lights off and we’re going to idle this. You can’t, because you’re producing a live animal that needs to be cared for every day.”

Farmers don’t have the option to hold off on sales, either. Even if they have space to hold those animals — plus nine months’ worth of newcomers — pigs are alive. They have to eat to stay that way. That means any delay in their delivery to a packing plant entails paying for more food, and in turn, sinking more costs into each hog.

Any drawdown of pork production would therefore happen slowly, which leaves producers two alternatives: cross their fingers and ride things out, or exit the industry altogether.

Most producers in Southeast Iowa have opted to white-knuckle their way through the storm.

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Whisler said he wasn’t sure what to expect. With pork prices on supermarket shelves considerably lower than beef, the dream is for demand to shift away from steak, thus moving up the price of pork, and improving hog farmers’ margins in turn.

“I’d like to say that we’re very close to that, and everybody keeps looking for that sign that we’ve turned the corner,” he said. “However, when I look out at December futures, which is the next month to roll up on the Chicago Board of Trade … that price has not moved much in comparison to October. You’ve got to go until next summer until prices get close to a profitable range.

“I would like to say that we’re six months away, but I am no expert, and anybody that tells you they know what the market’s going to do, they’re lying to you.”

Greiner, at Kat’s Grain, said there was a light at the end of the tunnel, however far away that may be. He cites the drop of corn prices by $2 a bushel since last year as a source of hope, with the option to buy futures if producers are worried about another spike.

“I know recently, especially locally, we’ve had some turmoil in the hog industry, but the outlook moving forward is better for feed costs,” he said. “When the price of corn drops $2 a bushel, that’s a pretty significant drop, that’s about 35%.”

Schulz said he agreed that the current situation wouldn’t last forever, but gives a somewhat less optimistic prediction for the near future in the soon-to-publish “Ag Decision Maker” newsletter, posted every month by ISU.

“The next year continues to look difficult financially for hog producers,” he writes. “An average annual loss of $18 per head is forecasted for 2024. If realized, 2023 and 2024 will go down as the worst two-year stretch for profitability in hog production, even eclipsing the infamous losses in 1998 and 1999. But profits will eventually return to the pork industry.”

Brenneman Pork is among top producers in the country. In an interview at the company’s office in rural Kalona, Owner Rob Brenneman said a focus on good genetics and animal health could offset the current market’s staggering input expenses.

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“If you have good health, that pig is not as expensive to raise, and you spread the same cost over more pounds,” he said. “And if the pig has better feed conversion, then you’ve got lower cost because it took less pounds of feed to produce a pound of pig. There’s a big difference in genetics … there might be somebody that’s losing $80 a pig, and there might be somebody that’s losing 10.”

Brenneman estimates his company’s net loss at around $30-$35 a head right now, but hopes to be breaking even by March, when feed prices typically drop, and hog prices start to go up, at least in typical economic cycles.

In any case, he said he was confident that most local hog farms would survive. Even as at least one major producer in the area faces a debt default, he said the Washington County community overall was among the best equipped in the industry, between its business environment, its know-how and its work ethic.

“Washington County will win, at the end of the day,” Brenneman said. “We’re going to come out of this OK. We’re going to recover … We’ll be a county that survives this thing, and it’s because we’ve got good bankers, people who understand the industry, and people that do a good job. We’re in the right place in the world to raise pigs.”

Comments: Kalen.McCain@southeastiowaunion.com