Pork glut
Farmers and packers at cross purposes
Last Update: 7:08 PM ET Jan 16, 1999
AUSTIN, Minn. (AP) -- 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 (HRL) 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.''
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