High Grain Prices Make Feeders Nervous

By ART CULLEN, Managing Editor

John Lawrence remembers well when he got out of raising hogs. It was 1980. Corn was $3.10 per bushel. Beans were $8.07. Hogs were $44 -- a money losing proposition.

Going back to school looked pretty good.

Now Lawrence is Iowa State University's top livestock economist. He understands the dilemma independent pork producers face today, with nearly identical market conditions. A big difference is that there are many more corporations involved in pork production.

"The people most likely to liquidate are those with corn to sell," Lawrence said.

And that is the little guy.

Independent livestock producers will have to take a hard look at their operations as they are under assault from stagnant prices and rising feed costs. They aren't as likely to have as deep a pocket as pork giant Wendell Murphy of North Carolina.

With corn topping $3 a bushel, the pork producer has to wonder whether hogs in the high $40 to low $50 range are worth it.

"Sometimes it's better to kill the hog and sell the corn," says Virgil Robinson, a commodities broker in Des Moines.

Robinson senses that liquidation of sow herds is occurring. Local bankers confirm that smaller producers are opting out, although not in the numbers that they were during the $29 disaster of October 1994.

Sow slaughter during October 1995 on a weekly basis was 15% below 12 months earlier, said University of Missouri economist Glenn Grimes. And, the most recent government hog report showed a slight rise in breeding stock.

"Which meat industry will blink first and start cutting corn use more than now believed is still uncertain," Grimes said.

Iowa State University grains economist Bob Wisner says that markets will dictate a 20-25% reduction in livestock feeding.

"It's not a matter of 'if,' it's a matter of when liquidation will occur," Robinson said.

But Lawrence says that the demise won't be rapid.

"You're definitely dealing with a more defiant crowd right now," Lawrence said. "The ones with the weak stomachs got out last year. Those left are fairly well-heeled, defiant and more resilient than one would expect."

PREDICTING WHEN and who is the hard part.

Time was when corn and hog prices went in fairly predictable cycles, said Scott Brown at the Food and Agriculture Policy Research Institute at the University of Missouri. The big increase in corporate hog feeding has skewed those cycles.

The independent producer hopes down deep that high corn prices will strangle corporate feeders. But that isn't happening. Rather, outfits like Iowa Select Farms are intent on expanding their production in Iowa.

"I'm sure they'll run in the red," Brown said, "but I also suspect they will have the ability to suffer the squeeze longer."

Iowa-based farm lender Dave Drey agrees. "With packer contracts and the like, I don't think they can just pull out."

Plus, fully integrated livestock companies -- those that own the pig from birth to slaughter -- have little care what the price of market hogs is. They merely care what pork will bring at the meat counter. That leaves herd rationing on the back of the independent producer with limited reserves.

Brown sees break-even costs for hog producers in the high-$40 range in this corn market. And, the best price projections are for hogs to peak in the mid $50 range by this summer. That is hardly cutting the fatted calf.

Many economists have come to believe that over the long term hog markets will plateau in the $40-$50 range as corporate ownership increases.

They call this progress

Premium Standard Farms portrayed itself in the late 1980s as the future of the pork industry: It had an option to start a hog confinement operation next to Iowa's most popular state park near Boone.

Local residents scared the company across the border to Missouri, which hailed the outfit as a development savior in a hard-scrabble region. Premium Standard hired scores of workers to staff its huge confinement buildings. It also decided to get into the slaughter business so it could capture profits all the way up the integration line.

Recently things started to turn sour. Bloomberg Business News detailed how PSF was having a miserable year -- losing $16 million during the third quarter of 1995 and $71.1 million for the first nine months. Institutions carrying up to $471 million of PSF debt reportedly are putting pressure on to reduce debt levels or sell. PSF says this is all the stuff of entrepreneurship. "We're as solvent as we've ever been," said spokesman Charlie Arnot.

PSF also is seeking tax breaks from Missouri counties. A PSF man told Putnam County that PSF might not be able to pay its property taxes on time. It was suggested that PSF might only pay 40% of its $363,247 tax bill to Putnam County, the Des Moines Register reported. Later, PSF promised to pay its taxes.

In December, Premium Standard spilled more than 30,000 gallons of manure into a creek in Putnam County.

Sticking together

Nearly 1,300 members -- fully 10% -- have abandoned the Iowa Pork Producers Association. The IPPA and National Pork Producers Association have been critical of efforts to regulate livestock waste. "People like me, family farmers with 50 or 60 sows, we feel like we are being jeopardized by this organization to help us," said Sac County farmer Harlan Meyer.

More than 1,200 Sac County residents -- fully 10% of the county's population -- petitioned the County Board of Supervisors to block a plan to prevent Iowa Select Farms from building a 25,000-head pork facility in their neighborhood. The county has no authority, and the state is expected to issue lagoon permits that will allow Iowa Select to commence construction.

Waste as a resource

Pennsylvania composting consultant George Lietig notes that livestock waste lagoons build a long-term problem for landowners. Soil loses productivity over time when sludge from waste -- thought to be a useful nutrient by big feeders -- is sprayed on the ground. Microbes shift and soil is compacted by heavy loads being run over the land. He advocates building compost from corn stover and livestock manure. It becomes a nutrient-rich, stink-free material that builds the land rather than compacting it. Phone 601-825-2973 for details.

Continuing CRP

The Center for Rural Affairs in Walthill, Neb., completed a study showing that proposed Congressional changes in the Conservation Reserve Program will cheat taxpayers. The Center's Chuck Hassebrook notes that allowing farmers to opt out of CRP -- an idling program for highly erodible acres -- after only four years instead of a decade will yield only one-third of the intended environmental benefits intended. But it would still cost taxpayers half of the anticipated outlay in payments from Uncle Sam. For more information about policies affecting rural communities, call 402-846-5428.

Tar Heel troubles North Carolina Gov. Jim Hunt ordered inspections of the state's 4,606 livestock waste lagoons. That action came after 25 million gallons of hog manure spilled into the New River last summer, choking off virtually all aquatic life. The results of the inspection are in: Two hundred serious violations were found, 145 of which were willfully discharging wastes into public waters. Poultry operations were the biggest offenders -- 1 in 10 was not complying with state law.

Sustainable talk

A consumer group known for its nutritional critiques of popular restaurants is plugging sustainable agriculture.

The Center for Science in the Public Interest, based in Washington, DC, produced 30- and 60-second radio spots featuring several farmers who discuss their reasons for switching to sustainable practices. One farmer said he saved $10,000 in fertilizer costs with sustainable cropping practices. A poll conducted by CSPI last winter found that 80% of consumers want farmers to reduce chemical pesticides and fertilizers on food crops -- even if that means a price increase at the supermarket. For details, call 1-800-346-9140.

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