Who is quitting?

In the past 6 weeks, I have been a speaker at pork producer trade shows in Minnesota, Iowa, Virginia, Ohio and Nebraska. At all of these shows, a common thread of discussion was prices, both for feed grains as input costs and for pigs at packing plants.

 

Everyone remains concerned about who will remain as we continue with this extended run of no or very limited profit months. An obvious question is – who is going to quit first? While there have been a few producers who have sold their breeding herd, it appears that the majority of US producers are still waiting for their Canadian counterparts to sell more females.

 

The combined North American breeding herd (December 1, 2008 USDA Hogs and Pigs report and the January 1, 2009 Canadian Inventory Estimate) stands at 7.486 million pigs. This is 96.5% of the inventory one year ago. While the reduction in the breeding herd is good news to those who remain in the business, I’m convinced we have a long way to go.

 

As I’ve written in previous weeks, we need to have over 4 million empty finishing spaces in the US to reduce our slaughter numbers 200,000 head per week. While reports of empty spaces are increasing, I don’t think we’re anywhere near this number.

 

In addition to the lack of sell-off of the breeding herd, we are also having one the best years ever for pig performance. As I surveyed the audiences in my presentations at trade shows, it was not uncommon to have producers relate death rates in nurseries of less than 1.5% and under 2% in grow-finish. In addition, they all talk about relatively fabulous rates of gain this winter. This suggests some of the empty facilities are due to better than expected pig performance, not fewer pigs.

 

How many females do we need to remove from the North American inventory to result in a major increase in price due to fewer pigs coming to slaughter? I don’t have a degree in economics, but my back of the envelope pen scratching suggests we need to get down to 6.5-6.8 million pigs in the breeding herd as a minimum. There are some that have suggested a long term number closer to 6.0 million is where this shakeout will ultimately end up.

 

Of course, government policies will have a major impact on this. In the US, will Congress heed the call of the ethanol industry for bail-out funds, while ignoring the plight of the livestock industry?

In Canada, will the Federal government approve a bailout plan for livestock? This past week, the Saskatchewan government approved a bail-out plan for their livestock industry. Checks will be provided to hog producers for animals they sold between July 1, 2008 and Jan. 31, 2009. The payments will be $20 (CA) per animal for market hogs and $10 (CA) for weanlings. Producers will get $40 (CA) per head for all breeding cows and bred heifers on a farm as of Jan. 1, 2009.

 

While not enough money to cover all of the losses these producers incurred the past 6 months, this infusion of cash will slow the exodus of Saskatchewan producers from the industry.

 

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