000450 Hog Farming Profitable Again

New Columbia, IL - More bacon on the menu at fast-food restaurants is helping reverse a collapse in pork prices that drove thousands of hog farmers out of business nationwide.

The pork industry is in the fourth month of a turnaround that has hog farmers turning a profit for the first time since October 1997.

“We've learned over the last few years just how frugally we can exist,” said Wayne Peugh, who has 1,200 sows on his farm in the central Illinois town of Edelstein. “Now it's time to see if we can make some money again.”

Although there are fears that falling slaughterhouse capacity could spark a return to the “hog crisis” of 1997-99, pork consumption is higher than it has been in two decades. Restaurant demand alone for bacon and other pork products has increased 17% in the last year, according to the National Pork Producers Council.

That is critical because 64% of the nation's pork is served through restaurants, the group said.

Among the restaurants driving the demand are Burger King, Wendy's and Jack in the Box. The chains all introduced sandwiches containing bacon last year.

Hogs were selling for 47 cents a pound Friday at Peoria, Ill., down a few cents from recent highs but almost six times more than the December 1998 low of 8 cents a pound. Producers need about 40 cents a pound to break even, according to economists.

“I don't want to tell you it's wide open and we should all go home and try to grow our business 10%,” said Jeff Galle, president of the Illinois Pork Producers Association. “If we all do that, we'll be right back where we started from.”

Hog prices began to plummet in 1998 after increasing supply driven by industry expansion met up with decreased capacity to process pork due to slaughterhouse closings. In addition, the Asian financial crisis and growing economic problems in Russia reduced worldwide demand for meat.

Prices farmers received plunged to historic lows and the loss of about $6 billion in the value of U.S. hog farming.

Farmers have since cut production by about 2%, and domestic slaughtering plants that had been under contract to handle some Canadian hogs are now focusing exclusively on U.S. animals, said Cindy Cunningham of the National Pork Producers Council.

Despite the general optimism, some in the industry are nervous. An Iowa plant is scheduled to close in the next month, reducing slaughter capacity by 2%. And there are fears that problems with the U.S. economy could lower demand again or that a severe drought would drive up the price of corn - the main livestock feed - and could sabotage the meat market.

“There's still a sense of dread out there,” Peugh said. “These scars run deep.

As a result, producers are approaching the upturn cautiously, said Kevin Logeman of New Columbia, who has about 700 sows on his southern Illinois farm.

“We're making money but not enough to get caught up,” he said. “We all put on a lot of debt in those two years.”

Logeman is one of many hog farmers in Illinois, the nation's No. 4 pork- producing state, who are turning to new business models to buffer themselves from the kind of economic hurricane that forced about 500 Illinois producers out of business last year.

He is on the board of a new farmer's cooperative that plans to build its own packing plant and market finished pork to consumers under a new brand name, “Meadowbrook Farms.”

“I want to have some control over my own destiny,” he said.

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