John Phipps: The Current Crisis for Pork Producers is Unlike the 1990s

John Phipps thinks the current hog market is almost impossible to describe. He explains why the issue is so complex and how the industry may cope with the evolving challenges. ( AgWeb )

The current hog market is almost impossible to describe. Because prices vary wildly depending in whether a packing plant is functioning anywhere close to capacity, hogs are now an asset that looks like real estate: the three main factors are location, location, and location. To be fair, some meat processors are functioning better than others, which adds even more volatility to hog prices.

Like we often do in highly uncertain circumstances, our brains search for memories that were similar for clues as to how the future might play out. I’m not sure those memories and lessons will help as much as we hope. Since the last hog crises in the 90s and shortly after, fundamental changes have reshaped the industry in profound and lasting ways.

One geographical concentration. Ever since the 80’s business and political influences, by way of regulation, have spurred massive expansion in North Carolina, Iowa, and Minnesota, overshadowing long time leaders like Illinois and Indiana.

The second factor is contract production. Depending on how you define contract production, it comprises between 20 to 50 percent of the industry and the overwhelming majority of industry expasnion. Typically, this means the farmer does not own the hogs or provide the feed. Instead, the farmer contributes labor and facilities in return for payments per hog. This change has huge implications for the current crisis, since unlike the farmers who sold sows for a nickel a pound in the 90s, a pork production company is often taking the loss on euthanized hogs today. Contract hog farmers still face a very uncertain future, since the entire system is backed up – from breeding to finishing, and the flow of payments for operators gets interrupted as well, while fixed expenses like facilities continue.

Since the last price crash, pork exports have jumped to over one-fifth of production. While Mexico remains the largest buyer, the previously growing shipments to China and Asia are now less predictable. Adding trade friction to COVID headaches creates another hurdle to get back to profitability. The pork industry was also chasing elusive consumer preferences before COVID-19. What happens to consumer tastes as a result of packing plant videos and the now unpredictable home/away food spending split is anybody’s guess.

The same hyper-efficient production techniques that helped the industry expand will struggle to find flexibility to cope with these multiple challenges.