WSJ article about a small town hog processor / meat retailer.
March 24, 1999
The Hog Farmers' Losses Put
A Butcher Shop on Knife-Edge
By CARL QUINTANILLA
Staff Reporter of THE WALL STREET JOURNAL
HAUBSTADT, Ind. -- As farmers here saw hog prices plunge to
Depression-era lows this winter, they felt as if salt were being rubbed in their
wounds. For even as they were losing heavily, somebody down the line -- big
meatpackers or supermarket chains -- seemed to be getting rich on pigs: The
price of pork at the supermarket was staying about as high as ever.
"These big companies are essentially
saying, 'Your goods are worth $20 --
we'll pay you $4,' " says Tom Dewig,
a local businessman. "That's what our
farmers are going through."
He knows what he's talking about. His
business is Dewig Meats, a place
where hogs waddle in the back, then
are displayed out front a few hours
later as ham and sausage. Mr. Dewig
(pronounced DAY-wig) is a
meatpacker and a meat retailer, too.
But he's not one of those "big
companies," for whom farmers' pain is assumed to be just an abstraction. Mr.
Dewig lives right here in Haubstadt. His delivery truck, with a pink pig painted
on the side, is a familiar sight as it rumbles through this small town's streets.
Dewig Meats, run by Tom and Janet Dewig, even caters local picnics.
Rare Moment
So what to do? On the one hand, the depressed hog market presented the
chance of a lifetime for them, a historic "spread" between what they could buy
pork for alive and what they could sell it for dressed. But if the Dewigs made a
killing on this, they knew they were doing it off the misfortune of
hard-working rural neighbors, some of them on the verge of bankruptcy. And
other people would know it, too.
Then again, the Dewigs are hard-working themselves, and they too have their
dreams. The couple, both 52 years old, wanted to expand and remodel the
business. "It was difficult," says Mr. Dewig, as he recalls the family's
deliberations over how to deal with local farmers when the hog business first
fell out of bed. "Prices were an absolute bargain, but we also had to know in
the back of our head that if we weren't fair, we'd end up paying for it."
This isn't the kind of thing that much troubles a big, publicly held company. It
is different when, as Mr. Dewig says, "I've got to live with these people."
Except for the 175-year-old Log Inn, said to have once served Abraham
Lincoln, Dewig Meats is about the only widely known business in Haubstadt, a
town of 1,445 set among the rolling hills of southern Indiana. Dewig has 50
employees and close to $10 million in annual sales. But it is also something of
an anachronism. As a few companies like IBP Inc., Excel, Smithfield Foods
Inc. and the Swift & Co. unit of ConAgra Inc. have grabbed most of the
hog-slaughter business, and as supermarket chains have supplanted local
butchers, the independent meat shop with its own "kill floor" has been getting
scarcer. Only about 1,800 remain, and almost nobody is opening a new one.
Dewig Meats dates from 1916, when Tom's grandfather started it.
It is a place where locals take visitors, showing them displays of special cuts
and sausages made from local livestock. Its following is loyal. "Nothing
compares to what those guys make," says Thomas Chamberlain, a South
Carolina resident who never visits his mother in Haubstadt without buying a
10-pound box of the Dewigs' frozen bratwursts to grill at home.
The Dewigs have made a good living. Their home is a brick estate with
circular driveway, topiary and pig statues. But they don't take their welcome
for granted. Each June they have a customer-appreciation day, selling
bratwurst for a quarter and giving proceeds to a hospital. ("They hire extra
people just to help park the cars," says City Clerk Bonnie Wagner.) When the
volunteer fire department's oldest engine, a 1947 Ford, was about to be taken
away by a vintage-truck collector. Mr. Dewig bought it. He gives
schoolchildren rides in it.
Mr. Dewig typically pays hog farmers the same price as Excel, a Cargill Inc.
unit and the nation's second-largest meatpacker, which has a large plant down
the road. Dewig Meats can slaughter a mere 200 hogs a week, but some
farmers would rather sell to it than to Excel; that way they know their produce
is served on local dinner tables and in restaurants.
And selling to the Dewigs is more personal. The Excel plant is a fortress-like
edifice with a wire fence and security guards at the gate. At Dewig Meats, a
farmer dropping off livestock can sip coffee with the proprietors while
watching his hogs amble off trailers. (Their next stop is the kill floor, where a
bolt of electricity to the head kills them, after which half a dozen workers with
knives set to work.)
The loyalty is such that when hog prices rose two years ago to a lofty 63 cents
a pound, a few farmers offered to sell to Dewig Meats for about 60 cents. Mr.
Dewig wouldn't accept the discount. "No matter what I said, I couldn't make
him do it," says Joe Knapp, a farmer. "I know he was losing money on that
pork." Large packers also took a beating in that period.
That price spike helped fuel a nationwide hog-herd overexpansion, which
began to depress prices last summer. By August, prices hovered at 30 cents a
pound, or about five cents less than break-even for most growers.
At his meat shop, Mr. Dewig rushed to a monitor each morning to check the
price of hogs, unable to believe his eyes. "We'd sit there and look at the thing
and say, 'It can't go any lower.' But it did," he says, shaking his head. "The
next day, we'd say, 'It can't go any lower.' But it did again."
Mr. Dewig had always said that no hog should sell for less than 30 cents a
pound. So when the market price dipped into the mid-20s in September and
October, he continued paying farmers 30, knowing that even at that price, he
could profit handily. By Halloween, though, the price farmers could get
elsewhere was down almost to 20 cents. Mr. Dewig finally broke his rule and
started paying less than 30 cents. "I lowered my standards," he says.
When the market price fell into the teens, Mr. Dewig set himself a new floor:
20 cents a pound. But then, in mid-December, prices briefly dipped below 10
cents a pound -- about a 60-year low -- and Mr. Dewig lowered his standards
yet again. Still, on a day when the Excel plant was offering farmers 11.5 cents
a pound, Mr. Dewig offered a nickel more.
Losing Big
Like hog growers all across America, farmers around Haubstadt were losing
megabucks. A 240-pound market-weight hog that would have brought $140 or
so a few years ago was at one point worth only $25 or $30. Farmers were
losing roughly $50 a head, just when the profitability had vanished from
virtually everything else they could raise.
But IBP Inc., acquiring hogs at this depressed price, saw its profits quadruple
in the fourth quarter, and pork became one of supermarkets' most profitable
items. The Dewigs also fared well: They had the best fourth quarter in their
history. "Our margins went up because costs were low -- plain and simple,"
Mr. Dewig says.
He and his wife started celebrating: Pursuing their dream of expansion, they
put $300,000 into new freezers and slaughtering equipment. They are planning
a $1.6 million improvement to the store's retail front, expanding the 60-foot
refrigerator case, which holds a mother lode of rib-eye steaks, pork chops and
smoked jowl. This month, the Dewigs missed the installation of a new
smokehouse because they were on a cruise to Barbados. The meat business
"has been good to me," Mr. Dewig says. "Real, real good."
'Good Guy'
For his hog-farmer neighbors, the above-market prices Dewig Meats paid
helped ease both losses and resentment. "He's fair," says Ray Rexing, who has
sold hogs to Mr. Dewig since 1970.
Mr. Knapp is of two minds. Mr. Dewig "understands we're losing our a___
and he's making money faster than he can rake it in," the farmer says. But the
next moment, he recalls the losses Mr. Dewig himself took two or three years
ago when hog farmers were doing well, and calls him a "dang good guy."
Talk of farmers throwing their hands in the air in frustration elicits only
understanding from Mr. Dewig. "Where would your hands be?" he says.
"Some were out of humor, and rightfully so." Still, inside the shop, farmers'
plight has created tension with customers, who sometimes "look at you like it
was your fault," says Mrs. Dewig.
To convince farmers of its support, Dewig Meats advertised that it would sell
pork items at special prices every week. One week, while supermarkets
charged $1.99 a pound for pork loin, Dewig Meats sold it for 99 cents. "I've
never heard of anyone else doing 99 cents a pound," says Steve Pohl, another
local farmer.
Hog prices have rebounded a bit. Some economists expect them to get back
above 35 cents a pound later this year, which would narrow farmers' losses
and meatpackers' and meat retailers' profits. Mr. Dewig says nothing will have
changed between him and his suppliers, some of them friends since grade
school. He says he is pleased with "the way I've treated these farmers. ... And
I'm sure they are, too."
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