Swine Industry Update for beginning of year

2008 in Review
Anyone that has been involved in the hog industry is glad to be done with this year. It has been a very difficult year financially for the swine sector. We have seen costs go up almost $50 a head, then drop and now rise again. (Corn has gone up $.70 a bushel since I wrote this column last month.) Revenues went up to almost $90/ carcass in August and now they’ve plunged to the low $50’s; a reduction of over $70 a head. That being said, exports were a shining star; the US industry will export close to 20% of our entire supply. This is a credit to being the lowest cost producer in the world and having a weaker dollar that allows us to be very competitive in a global marketplace. If our cost of production would have been close to what they were in the past, 2008 would have been a banner year for pork sector. Unfortunately, as we all know, this did not happen.

I have been amazed with the staying power of the people left in this industry. I have given several speeches in the last month and have stressed that if you think people are getting out of the industry, you need to rethink this. The culture with the producers left is that they are going to be the last people standing and everyone that is left is doing a better job with production on their farms. The one separation I do see now is the risk management piece. There are certain companies standing out this year because of their risk management on selling hogs and also managing through the volatility on feed costs. Believe it or not, there will be producers who made money in 2008 not only due to solid production but very good risk management in their operation. Yes, there is a reduction occurring, but it is slower than what you would anticipate.

Reduction in Total Meat Supplies
The positive note of the industry is that we are starting to see a trend of less total protein supplies compared to a year ago. This trend will continue into 2009. We will have a good chance that all proteins beef, poultry and pork will have less supply than compared to 2008. This should be supportive of meat prices being higher for 2009. The wild card for our industry will be domestic demand and export demand. If we can be close to the protein demand of 2008, we could have a much better year and a chance for profitability in 2009.

Lots of Meat in Cold Storage
The cold storage report that came out on November 30th shows we have 16% greater supply of all meat in cold storage compared to a year ago. In looking at the pork side, we have 8% higher pork in cold storage and 14.6% above the five year average. It is a little troubling that we are seeing this building up, especially in hams. Hams in cold storage were up 24% compared to a year ago and 41% above the five year average. These are numbers that will not help pork prices in the near future.