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by Annie Cunningham

Forecasters are predicting the possibility of severely low prices and lack of slaughter capacity for hogs this fall. Ohio Farm Bureau Federation (OFBF) staff joined in a conference call with members of American Farm Bureau Federation (AFBF) and other state Farm Bureau staff to discuss what can be done to avoid a pork price and marketing crisis in the fourth quarter of 2002 similar to the one experienced in 1998.

In March 2002, USDA reported pork exports are down 4 percent. USDA also forecasts hog prices 23 percent below 2001 prices. During the conference call many issues relating to this problem were discussed. Those involved agreed that Grain Inspection, Packers and Stockyards Administration (GIPSA) should ensure that price manipulation does not occur. They also believe USDA needs to review the farm-to-retail spread and wholesale-to-retail spread margins. USDA should now consider additional food aid programs and guaranteed loans to producer groups, not later.

AFBF has discussed the possibility of setting up meetings with packers, retailers and fast-food giants to discuss this situation and possible solutions to it on a proactive, not reactive, basis.

"We need to deal with this now rather than later. We don’t want to wait until it gets to the state of 1998’s market," said Mike Pullins, OFBF vice president of business services.

OFBF also would like to encourage farmers to have risk management protections in place now, and in the future, so they are prepared when significant market disruption occurs.

"We want producers to be aware of the possible situation. They should make sure marketing weights and numbers are current. They need to ensure that their capacity will be there and the slaughter house will take their animals," Pullins said.

It is now estimated that 80 percent or more of hogs marketed are sold on some type of contractual basis, up from the 67 percent projection of four years ago. This results in greater volatility on the open market.

During the fall of 1998, actual hog numbers were higher than anticipated, which caused the hog processing industry to be strained beyond capacity. As a result, some producers made less than 8 cents per pound on their hogs. In a May 14 letter to Agriculture Secretary Ann Veneman, AFBF compared data from 1998 to estimates for this fall that "leads [AFBF] to believe that a repeat of the 1998 disaster in hog prices is possible."

That's because total slaughter capacity in 2002 is similar to the fall of 1998, assuming no further packing plant closures, Farm Bureau said. Further, the total number of hogs expected to be slaughtered this fall is only slightly less than in 1998, when capacity was severely strained.

Forecasters predict that more than 2 million head per week will be slaughtered in 11 of the 13 weeks in the 2002 fall quarter, straining plant and freezer capacity, as well as labor availability and costs.

By the end of 1998, cold storage space filled up and packers were forced to reduce production. AFBF's analysis shows the same scenario could play out this fall, as current pork stocks are the third highest they've been in the past 40 years, beef stocks are currently at their highest level since April 1979 and poultry stocks are the second highest on record.

AFBF met with USDA Undersecretary Bill Hawks and Donna Reifschneider, administrator of GIPSA, to discuss ways to avoid sharp price drops and overcapacity this fall. Proposed solutions from the meeting include USDA-implemented programs to free up freezer space this fall, such as buying meat stocks for school lunch and export programs.

Farm Bureau also recommended USDA should ensure environmental laws do not hamper plant capacity, make sure employees are available to keep plants operating, consider guaranteed loan programs to help purchase closed plants or open new ones, and ensure proper competition through GIPSA.

"We just want to ensure the proper procedures are used. We don’t want any of our farmers to be taken advantage of," Pullins said.

Another minor complication that may interfere with the U.S. market are massive imports of feeder pigs from Canada. Canadian imports are up 67 percent since 1996.

Russia’s ban on U.S. poultry products also has had an affect on the hog futures. The U.S. meat supply has been overloaded, causing prices of all meats to decline and freezer stocks to rise. Since mid-March, lean hog futures have fallen more than $18 per hundredweight.

Ohio Farm Bureau supports AFBF’s efforts to avert the hog crisis, and will continue to work toward a better market for Ohio’s farmers.