Glenn Grimes from the University of Missouri visited with attendees at the 2009 World Pork Expo in early June.

DES MOINES – Dramatic cutbacks will be required to stop the massive flow of red ink that has fractured the U.S. pork industry since the fall of 2007.

“This is one of the most challenging times the pork industry has faced in six decades,” said Glenn Grimes, a professor emeritus in ag economics from the University of Missouri, who spoke at last week’s 2009 World Pork Expo in Des Moines. “In the past two years, it hasn’t been pork demand or hog prices that have been the problem, it’s what it costs farmers to produce pork.”

High feed costs may not abate anytime soon, said Grimes, who noted that the key driving forces includes oil prices, biofuels policy and the U.S. and global economies.

A severe drop in the size of South America’s crops is complicating matters, as the worst drought in a generation turns much of Argentina’s breadbasket into a dust bowl.

This will contribute to tighter corn and soybean supplies into 2010, said Bob Wisner, a retired Iowa State University ag economist who also spoke at the World Pork Expo.

“You can expect high and volatile soy meal prices through early October and watch for tightening corn supplies in 2009-2010,” he added.

Exports may break positive trend

While the U.S. pork industry enjoyed its 17th record year of pork exports in 2008, this trend will likely be broken in 2009. Industry observers are expecting a drop in U.S. pork exports of 13.2 percent. “I hope this is too pessimistic, but I don’t think it is,” Grimes said.

One of the biggest factors working against U.S. pork exports has been the outbreak of the H1N1 flu virus in late April and early May of 2009. While the data was not yet available in early June to show how the flu virus impacted exports in the second quarter, pork purchases from some of the United States’ biggest export markets had already started to decline in the first quarter of 2009. This was due to the weakening global economy and the value of the dollar.

Of the top five U.S. pork importing countries in 2008, which included Japan, Russia, Mexico, South Korea and China, U.S. exports to Russia in the first quarter of 2009 dipped 45 percent, while exports to China and Hong Kong plunged 63 percent.

Grimes indicated that just at a time when the swine market should have been trending upward, the H1N1 virus made headlines worldwide and sent hog prices and export demand into a tailspin when the disease was incorrectly publicized as the “swine flu.” Grimes, who believes the H1N1 outbreak’s impact on U.S. producers’ bottom line may reach $487 million by late summer, expects export data from May of 2009 to give a clearer picture of the virus’s influence on U.S. pork exports.

“You just have to marvel at how things have changed. There’s no scientific evidence that H1N1 should have triggered all this, but emotions got carried away. About all you can say is that the record exports were good while they lasted.”

Outlook remains grim

When Grimes shared his price forecasts for 2009, a collective gasp could be heard across the room as the gravity of the situation struck pork producers and economists alike.

Based on an Iowa-Southern Minnesota live hog price forecast, Grimes had first quarter prices ranging from $44 to $49, second quarter prices ranging from $44 to $46, third quarter prices ranging from $47 to $50, and fourth quarter prices ranging from $43 to $46, with a yearly average of $45 to $47.

“I believe the red ink for livestock producers will continue for the next 12 months, due to high feed costs and a decrease in exports,” Grimes said. “In the swine industry, we must downsize, and these cuts have to be substantial.”

Contact Darcy Dougherty Maulsby at yettergirl@yahoo.com.