AFBF's chief economist said the pork industry is facing challenges that will fundamentally alter it.

Dairy, pork industries hit hard, slowly starting to recover

Buckeye Farm News

Both the U.S. dairy and pork industries need to drastically reduce the number of cattle and hogs in order to raise prices and have production be more in balance with demand, ag economists said.

“We have real, serious challenges in the hog and dairy sectors, challenges that will fundamentally alter the structure of the pork industry,” said Bob Young, chief economist for American Farm Bureau Federation.

The dairy industry has already reduced its herd size by more than 225,000 head of cattle but needs to shed another 100,000, said Cameron Thraen, an Ohio State University Extension dairy economist. The latest figures show the herd size is just above 9 million. The size of the herd peaked at 9.3 million in the summer of 2008 when international demand for skim milk powder was strong because of changes in European Union CAP policies and weather problems in Australia and New Zealand. The United States was one of the few countries that could meet the demand for the skim milk, Thraen said.

“The problem started in December of 2008 with the global recession,” Thraen said. “As the economies in India and China ground to a halt, the contracts that were there ran their course. Prices fell 50 percent overnight, from $20 to $10.”

At the same time milk prices dropped to the domestic-supported $10, feed costs continued to rise, Thraen said.

In the pork industry, the problems go back to the fall of 2007 when prices for corn jumped from $2.50 per bushel to about $4, said Erica Rosa, an ag economist with the Livestock Marketing Information Center. The U.S. pork industry has lost $5.4 billion since September of 2007 with producers losing an average of more than $23 per hog.

The pork industry, however, did OK in 2008, mostly because of its export market to other countries, in particular China and Russia. In China, its pigs were plagued by a disease, and the country imported a lot of hogs because it wanted a sufficient supply of pork on hand before the Olympics, Rosa said. Pork exports grew by 68 percent in the first half of the year, economists said.

But then the global recession hit and the export market started to dry up. The negative publicity this spring from the H1N1 virus, labeled the “swine flu” in the media, caused consumer concern and countries such as China to ban imports of U.S. pork. The U.S. pork industry has lost about $1.5 billion since the virus was first reported, according to the National Pork Producers Council.

The U.S. Department of Agriculture has made three supplemental purchases of pork to help the industry, and China has agreed to resume pork imports. But the industry still needs to cut about 10 percent of its sows to get prices back up, Rosa said.

Rosa recommended that for now pork producers concentrate more on the short term than long term and lock in prices for next year. Some futures traders are predicting $50.50 for a farm level price next year, which would be a breakeven price.

The dairy industry is already starting to recover, and Ohio dairy producers are in a much better position than those out west, Thraen said. He said many producers in Ohio and other Midwest states are able to grow a lot of their own feed unlike western producers who have to purchase their feed. Ohio has 276,000 dairy cows and only lost a couple of thousand this year, he said.

“Ohio has been increasing production per cow. Ohio is surviving this and is in a position to do well,” Thraen said.

Thraen suggested farmers use the tools available through futures markets and make use of OSU Extension personnel who can help producers make sure their debt per cow doesn’t exceed the recommended $3,000 per cow.

“I’ve seen dairies go out of business because their debt per cow was well over ($3,000),” he said. “Producers need to understand the very basic financial indicators.”

Advisory Council Questions: How are livestock producers in your area weathering the price storm? Does your council have policy solutions to help deal with the price risks of livestock farming? Share your answers on the Ohio Farm Bureau Advisory Discussion Board.

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