U.S.D.A., can you spare a dime - or $150 million?

by MEAT&POULTRY Staff
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When pork producers ask for a government hand-out, you know things are bad in the pork industry. "The pork industry does believe in free markets," Dave Warner, spokesman for the National Pork Producers Council, told MEATPOULTRY.com, "and the free market is about to work." In other words, a lot of pork producers are about to become former pork producers.

A combination of lower-than-break-even hog prices due to high supply, high feed and other input costs, some key export markets that got shuttered to U.S. pork on fears of H1N1, and the general economic recession presently engulfing the globe has proved to be business-killing for many pork producers. "But maybe," Warner adds, "these guys can get out with at least something" – if the government extends a helping hand, that is.

The full package of assistance that NPPC has asked the federal government for includes a $50 million supplemental pork purchase in the remainder of fiscal 2009, an additional $50 million supplemental pork purchase in fiscal 2010, a $50 million pork buy by USDA under the Section 32 program, $100 million in assistance for the damage caused to the industry by H1N1, and diplomatic help from the U.S. Trade Representative’s office to re-open China and other key export markets to U.S. pork. In announcing the requests last week, NPPC president Don Butler said: "We are seeing pork producers go out of business, which will reduce long-term supply and ultimately increase food costs for consumers." According to NPPC data, pork producers have lost an average of more than $21.50 per hog over the past 21 months, with projections showing that the losses could amount to more than $50 per hog this fall. The Council’s request – the second it has made this summer -- followed a somewhat similar request made to USDA in a letter signed by nine pork-state governors.

But Warner and NPPC do not see bright days ahead even if the government grants the industry everything it asked for. "It would help a little bit if they did everything we asked," said Warner. "But the overall pork-purchase package of $150 million still wouldn’t bring prices up enough for producers to break even."

Some outside the industry may feel little sympathy for pork producers, who enjoyed an unprecedented run of 40 profitable months – some of them very profitable – from early 2005 until mid-2008. October 2008 was the first month the industry showed losses, which have continued unbroken since then. But Warner says the recent downturn has been so sharp and has generated such losses that virtually all of the equity and savings built up by pork producers since 2005 have vanished. There’s no cushion now.

At the same time, it has been difficult for some producers to let go of the profit-production mindset and are reluctant to reduce their hog numbers. In 2008 U.S. hog producers raised 116 million animals, up 2 million over the 2007 total. Technology has played a role, too. "We just keep getting better at it," Warner told MEATPOULTRY.com. "And the price has been steady for two years." When asked why pork producers won’t reduce supply to push up prices, thus helping themselves, Warner responded: "That’s up to individual farmers. We can’t tell them what to do."

Requests for government largess notwithstanding, he sees exports as pork’s best way out of its economic situation. The trouble is that pork has become mired in the complex trade situation with China and is, Warner noted, a big and easy target for Chinese authorities to aim at when trying to force concessions from the U.S. There’s some feeling, for example, that China used H1N1 as an excuse to block imports of U.S. pork when the real reason for the action was pay-back for the U.S.’s ban on importing cooked chicken from China, which dates back to 2006. "We’re now trying to get the Senate to strip the chicken language out of the trade bill," he said, "hoping that that will kind of untangle pork from the whole thing. But we don’t know yet if that’s going to happen."

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