Iowa packers living high on the hog

Matt Kuhns

Iowa has always been a major state for hog farming, but the current supply of hogs is so high it’s actually having a negative effect on farmers.

“The supply being produced on farms is at record-high levels,” said John Miranowski, professor and chair of agricultural economics.

He said the supply is exceeding packing plants’ capacity.

As the son of a hog farmer, Cameron Gregg, junior in agricultural business, has a personal interest in the current market situation.

Gregg said farmers are probably losing almost $50 on every hog.

“When you’re raising hundreds of hogs, that’s pretty discouraging,” he said.

Changes in agriculture are making it difficult for young people to make a living farming, Gregg said. He said the problems of unstable livestock prices are compounded by all-time-high land prices.

“It’s impossible for beginning farmers [to buy land at current prices],” Gregg said.

Nonetheless, Gregg said he believes the low hog prices will have a positive effect on the farming industry in the long run.

He said he thinks the situation is “great,” because the farmers doing a good job will survive this situation, while the less effective farmers will be weeded out. Gregg added that he expects his father’s farm to last.

The hog market glut is already causing problems for farmers, but Miranowski said they aren’t the only ones who will be affected by this situation.

“There’s definitely going to be an impact on main street businesses,” he said.

Oddly enough, the surplus doesn’t seem to be having much effect on pork consumers.

Even as the price of hogs has gone through the floor, prices for pork products have stayed relatively unchanged.

Bruce Babcock, professor of economics, said this is not as strange as it seems.

He said traditionally, retail prices have always been more stable than farm-level prices.

“There’s not a one-to-one correlation” between what the producers are paid and what consumers pay in the grocery store, he said.

Babcock said pork producers are at maximum capacity more or less all the time, so no matter how many hogs are produced, the supply of pork will not change significantly.

This situation is great for retailers and wholesalers, Babcock said, but it’s a disaster for farmers, who are losing lots of money.

A few pork producers are so discouraged by the low price their hogs bring that they’re giving the animals away rather than selling them to the packers.

Farmers could cut back production to stabilize hog prices, but that would require a level of coordination that doesn’t occur in a free-market economy, Babcock said.

Miranowski said a situation similar to the current hog market glut occurred in 1994, but it was not as severe because it ended sooner.

He said it’s too early for economists to assess what the statewide impact of this surplus will be.

“In the overall balance we don’t know how big [the surplus’ impact] will be because we don’t know how long it will last,” he said.

Miranowski said he anticipates that the surplus will end sometime in the next month, however, and that afterward hog prices should rebound quickly.