Austin, MN - While hog farmers across the country are suffering from the lowest prices in four decades because of a pork glut, business is on the upswing at meat-packing plants.
Austin-based Hormel slaughters 32,000 hogs a day at its plants in Austin, Fremont, Neb., and Rochelle, Ill., for use in about half of its 6,400 branded products, which include Spam, Cure 81 ham and Black Label bacon.
"It's either been good for (producers) and bad for us, or good for us and bad for them,” said Brian Stevens, Hormel's manager of pork procurement.
"It's no secret that for the first time in several years pork packers have been making money,” said Gary Mickelson, a spokesman for IBP Inc., the country's second-largest hog slaughterer in 1997. IBP, based in Dakota City, Neb., slaughtered about 65,900 hogs a day in 1997 and is the world's leading producer of fresh beef and pork.
Stories of struggling farmers have the government looking at pricing practices in the industry. Packers say oversupply is to blame for the low prices, and free-market forces will eventually even out the imbalance.
While they are profiting now, they say it's part of the cyclical nature of the business.
"Our industry has gone from one extreme to the other,” Mickelson said.
In 1996 and 1997, there was more packer capacity than there were hogs.
Prices were up and many packers lost money. Meanwhile, pork farmers were expanding their business.
Now, there are too many hogs, and packers are working overtime to keep up, slaughtering more than 2 million head a week nationally in December.
The situation was caused by an increase in hog production domestically, an increase in hogs imported from Canada and the closing of several slaughter plants in the last couple of years.
"This is not good for anybody,” said Jens Knutson, chief economist at the American Meat Institute, a trade association that represents meat packers and processors. "We rely on these producers for our livelihood.”
Packers point out one protection farmers can get for themselves: long-term, risk-sharing contracts with the packers that stabilize prices.
Hormel buys about half its hogs that way. The contract runs from about five to 10 years and pays the farmer a price based on the price of corn and soybeans and the market price for hogs. Farmers typically won't get the top price when the market is high, but they're shielded from the very low prices, too.
While Hormel buys half its hogs at the open-market price, which averaged $30 per hundredweight last week, the company paid $39.80 per hundredweight last week to contract producers. The contract price changes weekly.
Last year the food company earned a record $139.3 million, but that would have been higher without contracts, officials said.
The federal government is looking at ways to help hog producers, and U.S. Agriculture Secretary Dan Glickman has asked for an investigation into possible price-fixing in the pork industry. About 60 percent of the country's meat packing is controlled by six companies.
Steve Cohen, a spokesman for the National Pork Producers Council, said the organization is "not out to be finger-pointers” by blaming anyone for the situation. "We've always said capacity has caused the problem - the loss of packing capacity.”
Meat Industry Insights News Service
P.O. Box 553
Northport, NY 11768
Phone: 631-757-4010
Fax: 631-757-4060
E-mail: sflanagan@sprintmail.com
Return to Home Page