For the pork industry, here’s the bad news: prices aren’t going to recover anytime soon. And the good news? The good news is that there isn’t more bad news – for the time being, at least.
The dismal assessment comes from Mark Greenwood, vice president of Agri Business Capital, a unit of AgStar Financial Services. "We thought we’d see some price recovery this summer, but we’re in a real demand funk," he told MEATPOULTRY.com. "About a year ago, I sent out a warning signal to the pork industry that it needed to contract – and this is when pigs were at 75-80 cents. Now we’ve had a financial crisis that’s putting a damper on exports, plus the H1N1 situation. Hogs are at 55-56 cents right now, and I don’t think we’re going to see prices higher than the mid-60s this year. It’s going to shape up to be one of the worst years on record. 2008 was bad, but 2009 will be worse."
Greenwood said that over recent decades, the pork industry has become expert at production but lousy at making money. Meanwhile, competitor proteins – notably the poultry industry, Greenwood said – have become more creative on the demand side while also reducing production costs, as the pork industry has. "Look at the creativity of the broiler industry – they’ve grown their share of the meat case, especially in the deli area, where the real profits are. They’ve differentiated and remade themselves."
In pork, he added, "I think we’ve become so focused on export demand that we’ve lost focus on our largest customer, which is the U.S. consumer."
Greenwood is a supporter of the so-called Producer Retirement Program, which was proposed earlier this month at the World Pork Expo in Des Moines, Iowa, by Chuck Wirtz, an Iowa hog producer. The program is intended to help compensate hog farmers who voluntarily reduce the size of their heard, and is "sponsored by, controlled by and paid for by U.S. pork producers," Wirtz told an audience at the Expo. "It is designed to provide an opportunity for producers to retire their entire farrowing operation, or parts of their operation, via retiring individual sow units."
PRP will enhance the cull price that the program’s participants would otherwise receive for the sows that are culled. To participate, a producer pays $20 per sow into the program, which uses the membership payments to fund the cull supplement payments. Producers would have to submit a plan for their herd reduction, and the plan must include leaving their sow facilities empty for two years. PRP hopes to raise $50 million, Wirtz said.
"From a lender’s perspective, it’s a good program," Greenwood, who hosted an Internet workshop devoted to the PRP, told MEATPOULTRY.com, "but it’s up to the producers to make it viable."
But in the long term, he said, "the only thing that’s really going to change things is to improve demand. That’s what the broiler industry was able to do, with new products and good marketing and promotion."
He added: "I wonder if the pork industry might finally have to go where the broiler industry already is – into being fully integrated. I think the swine industry is still trying to find the correct model."