SFD mention. Drought, mountain of meat hurt U.S. pork industry
August 30, 2002 2:21:00 PM ET
By Bob Burgdorfer
CHICAGO, Aug 30 (Reuters) - Drought and a mountain of meat backed up in warehouses are set to pressure pork prices this fall to the lowest level in several years -- good news to consumers but a new headache for farmers and packers.
The drought in the U.S. Corn Belt has sent prices of corn, the main livestock feed, soaring this summer, leaving hog producers swimming in red ink and accelerating a push to shrink or sell off their herds.
For consumers, the glut of hogs likely means low-priced pork through mid-2003. Beef supplies are expected to decline later this year, but it will be hard for beef prices to move higher because of competitive pressure from pork and chicken.
"We will probably see some of the cheapest retail pork prices in about four years," said Kevin Bost, a meat analyst at Topco Associates, a food cooperative that supplies about 2,000 supermarkets nationwide.
Hogs have flooded packing houses this month at a record pace, driving prices so low that producers are losing $40 to $50 on every animal they sell. The flow of hogs coming in from Canada has also added pressure.
But the avalanche of hogs is piling onto an already huge mountain of pork and, especially, poultry in cold storage.
At the end of July, stocks of frozen pork in U.S. warehouses totaled 473.9 million lbs, well above the 339.5 million lbs in cold storage a year earlier, according to the U.S. Agriculture Department.
Meanwhile, frozen beef stocks had risen to 423.2 million lbs, up from 351.4 million a year ago. Frozen poultry stocks were also at an all-time high 1.581 billion lbs, up from 1.186 billion a year earlier.
The abundance of poultry has been the prime factor behind lower retail prices for all meats this year, as a halt in imports from Russia -- the top U.S. poultry market -- pushed thousands of tons of excess chicken meat into supermarkets, sparking a discounting war among retailers.
The United States and Russia last week announced an agreement that should allow U.S. exports to resume. But analysts said U.S. consumers will have no problem finding abundant low-priced hams, chops, and other pork items this fall and winter.
ECHOES OF 1998 OVERSUPPLY WOES
Four years ago, beginning in late 1998, the hog industry went through a devastating period when supplies were so huge hog prices fell to a 50-year low of under $10 per hundred lbs. Prices are presently around $20 per hundred lbs.
Hog producers now fear a repeat of that nightmare.
On Thursday, Gov. Tom Vilsack of Iowa, the largest hog producing state, advised producers to sell hogs now rather than create an avalanche this fall that could bury prices.
"Pulling some of the fall supplies ahead a few days would reduce the number of hogs targeted for the fourth quarter," Vilsack said in a letter to hog producers.
Vilsack said Iowa State University economists were worried that fourth-quarter hog supplies could exceed the nation's slaughter capacity. Having more hogs than pork plants can handle even for a few days "Could force hog prices lower and cause a repeat of the disastrous 1998 hog market," he said.
Producers in Illinois shared the same worries.
"I have hopes it is happening earlier than what we have anticipated and that December isn't going to be as bad as expected," John Kellogg, a Yorkville, Illinois, hog producer, said of current hog sales. "Either it is happening quicker, or it is going to be terrible in December," he said.
Kellogg, who ships about 28,000 hogs a year, said he will have to borrow money to survive this year's market. At current prices, Kellogg estimates he is losing $40 to $50 on each hog.
"Nobody can stand that for an extended period of time, so people are either going to quit or use up any equity they have and try and stick this thing out," Kellogg said.
Big meatpackers have also been feeling the pinch.
Tyson Foods Inc. (TSN), the world's top meat producer, said on Aug. 18 it would cut the number of sows in its swine operation by 30 percent to about 70,000 due to losses.
Smithfield Foods Inc. (SFD), the nation's largest hog and pork producer, last week blamed low hog prices for a nearly 80 percent drop in quarterly earnings. REUTERS
