Agricultural Economy: Drought, Livestock Sector Profitability, and Production Issues
Purdue University Agricultural Economist Chris Hurt indicated yesterday (“Pork Industry Faces Record Losses”) that, “A tsunami of red ink is about to wash across the pork industry which is facing losses unseen even in the fall of 1998 when hog prices at times approached zero value. The stressors include: more hogs than expected, rapid sow liquidation now underway, and record feed prices. Losses in the final quarter of this year could be $60 per head, exceeding the previous record quarterly losses of $45 per head in the fall of 1998.”
After additional analysis, Dr. Hurt noted that, “Financial losses of the magnitudes projected here will cause massive erosions of family equity and some bankruptcies. Unfortunately losses in 2008 and 2009 were not fully recovered by the profits in 2010 and 2011 so that some producers face this tsunami in weakened financial condition. Family hog farms with a sizable land base will have land equity to draw on. Larger hog producers with a minimum land base will need to draw on corporate equity and then their lenders. Lenders will make the final decisions for the weakest, but will strive to keep companies in operation as they seek new buyers. This means that another round of consolidation of ownership can be anticipated.
“Unfortunately, individual producers are going to need to find their own way through the short-term carnage. The irony is that hog production may return to profitability by mid-summer 2013 when meal prices begin to moderate, hog prices move to record highs, and rain and reasonable temperatures bless our nation’s corn and soybean fields once again.”