Chris Hurt knows from personal experience the myriad of challenges facing those who raise hogs. The 26-year veteran of Purdue University and professor of agricultural economics was raised on a diversified livestock farm near Casey, IL, that included hogs. And he owned and operated a 120-sow, farrow-to-finish operation on the home farm during the mid-‘70s that saw low grain costs and very profitable hog prices.

Now, Hurt is trying to convince pork producers that those highly profitable margins they have enjoyed for the last three years may be a thing of the past. Escalating demand for ethanol from corn has caused grain prices to skyrocket, while hog prices have softened as pork supplies have continued a slow but steady climb.

“Feed prices are much higher, and the quickest way for hog prices to move higher is to cut production,” says Hurt, who produces a joint weekly outlook report with the University of Illinois' Darryl Good, who prepares the grain side of the reports.

But the fact is, hog producers have not yet flinched, and they are following a trend line that will carry them to the eighth consecutive year of growth in 2007, he reports. Pork production is expected to increase by 2% in 2007. While Midwest hog states have cut back on sow numbers, according to the latest Hogs and Pigs Report, the eastern Corn Belt has more than offset that decline by adding numbers, Hurt says.

Pork exports continue to boost hog prices, which have experienced 15 consecutive years of growth, while domestic consumption of pork has practically stayed flat, only increasing incrementally by population growth, he explains.

With pork exports expected to moderate this year, and USDA predicting growth limited to just 5%, Hurt is advising producers to heed the potential warning signs and make management adjustments accordingly.

“These are going to be difficult years of transition in 2007 and 2008, and the only way to get through them is to diversify your buying needs throughout the year and find a way to cut 3-5% of U.S. production,” he says.

If the corn crop meets projections of 90 million acres, yields reach 152 or higher and hog prices stay lodged in the upper $40s, it's possible that producers could cover all costs and maybe record a small profit at times in 2007 and record a breakeven year. That could help bolster bottom lines and survival until profitability returns in late 2008 and into 2009, Hurt predicts.

But producers need to tighten their belts to get through this transition, basing buying and selling decisions on their current marketing situation, not relying on emotion to make those decisions, because those almost always turn out wrong, he stresses.

Cutting production is seldom a popular message for producers. But Hurt stresses it's vital that producers soon embrace downsizing for the industry to attain higher prices and hold down production costs.

Similarly, he remembers being dispatched to the Midwest in the early- to mid-‘90s, during a period of rapid change when farmers were struggling to survive.

His highly unpopular message was that the industry was evolving from small-farm production dynamics to a larger, much different kind of hog business that was more integrated and focused on improving efficiencies and lowering the cost of production.

During those changing times, Hurt recalls many Midwestern states responded by floating anti-corporate farming laws as a way to constrain and stop this trend. They also developed environmental laws to restrict large-scale operations.

But most of these actions have met with limited success. As a prime example, Hurt points to the recent ruling that found Nebraska's anti-corporate farming law, I-300, unconstitutional.

Minnesota and Iowa producers survived the '90s transition in larger numbers than some other states by embracing ownership in sow cooperatives as a way for smaller hog producers to “look” big while retaining their independence, he comments.

In contrast, Indiana's hog industry has shrunk considerably, as small producers chose to stay strictly independent. Many of those stalwarts were forced out of business when margins tightened during the late '90s, according to Hurt.

Hurt has received three agricultural economics degrees — a bachelor's from the University of Illinois in 1971, followed by a master's from Cornell University in 1973 and a PhD from the University of Illinois in 1981.

After receiving his master's degree, he worked for Cargill in commodity grain marketing for a few years in Minnesota and Georgia, until the urge to raise hogs struck again.

He expanded the family hog operation to 120 sows and invested in quite a few new buildings. “I wanted to have an opportunity to have my own business. Cargill gave me a lot of experience in making decisions, so I wanted to try it for myself.

“This was not an unusual move in the mid-‘70s. It was still a time when quite a few young people did go back to the farm — and it was really the last time in the history of American agriculture that agriculture drew people back to the farm,” he says.

And his operation prospered. Using his marketing expertise and the record-high hog prices, he paid off the building investments in about three years.

But after a short time, the lure of college and the lack of interaction with others returned, and he resumed his college education, pursuing his PhD.

He continued to raise hogs, but on his way back home to the farm one day after attending classes, he stopped at Mattoon, the home of Lakeland Community College, to inquire about teaching prospects. That was on a Friday. He started teaching introductory agricultural economics at the school the following Monday.

He counts that as three jobs from 1978 to 1980 — his schooling, teaching and raising hogs.

As time went by, the workload grew too much and he started selling off sows. By the time he received his PhD in 1981, the hog operation was nearly defunct.

At that time, he had tenure at Lakeland, but searched for other opportunities, landing a position at Purdue in the area of commodity marketing with teaching, research and Extension appointments.

He attempted to revive the small hog operation, but by 1983 became convinced that the economic model would not stand the test of time.

Today, Hurt's appointment at Purdue is 70% in Extension and 30% in teaching, and he spends much of his time on the speakers' circuit throughout Indiana and other states, providing detailed outlook information.

With an adequate corn supply being one of the critical questions facing the pork industry, Hurt envisions that some progressive pork producers will align themselves with grain suppliers in what he is calling “end-user supply contracts.”

“We think this concern about grain supplies is really going to push large pork and poultry producers, in particular, toward supply contracts,” he continues. “One of the parts of that arrangement will be — when you raise corn, you raise corn for us. The second component of that contract will be determining what type of corn you are going to raise for us.”

In other words, grain supply contracts will eventually lead to pushing the genetic envelope and call for a specific type of corn to be produced. For example, a high-starch corn could be grown for ethanol production, while another type of corn could be raised to provide optimum nutrition for hogs.

The result could be a grain industry that becomes much more coordinated, such as what has happened in the hog industry. No one thought in 1990 that about 20 large producers could ever dominate the hog industry. But in fact, 80% market domination only took 10 years.

Looking 10-20 years into the future, Hurt projects that to survive and be successful, pork producers will need to control costs by implementing an integrated system of production all the way from the farm to the retail sector.
— Joe Vansickle, Senior Editor

Continue to next Master: Don Levis >

---

Jump to:
Bob Dykhuis | Jill Appell | Bob Baarsch | Roy Schultz, DVM | Chris Hurt | Don Levis | Temple Grandin | Alan Sutton | Gary Cromwell | Allen E. Christian