As grain growers profit, U.S. hog farmers suffer

By Bob Burgdorfer

HAMPSHIRE, Illinois (Reuters) - As U.S. growers anticipate record returns for crops they are planting this spring, at least one sector of the rural economy is not enjoying the runup in grain prices: hog farmers.

High prices for grains, driven by demand for food around the world, means high prices for hog feed. The price of energy, a major cost for farmers, has also jumped, and hog prices have dropped well below production costs for farmers all over the United States.

Economists predict that some will pare back this year and others will quit. Smithfield Foods Inc, the country's largest hog producer, has already said it is cutting production because of high feed costs.

But for Bill and Pat Dumoulin of Hampshire, Illinois, quitting is not an option, nor do they intend to cut back. They rely on their business to support the families of their three adult children and to save for college for their 20 grandchildren.

Their hog barns northwest of Chicago are full and they are prepared to weather bad times, just like they did in 1998, when hog prices plummeted to a 50-year low.

"We are in a down cycle but we will come out of it," said Pat Dumoulin, 74, the matriarch and bookkeeper of the operation.

Instead of cutting the number of hogs, the Dumoulins are looking to cut costs. They already slashed electricity use by two-thirds in one barn just by installing more efficient lights. They also will be adjusting hog feeding units to reduce feed spillage.

"The first thing you try to do when you come into a down market is look at where are you going to cut costs," said her son, Patrick, 47, who with his brother Michael, 48, oversees much of the operation.

ECONOMIC COST

The Dumoulins were not prepared to put a figure on their production costs, but according to agricultural economist Ron Plain of the University of Missouri, at current corn, electricity and diesel prices, it costs about $54 to produce 100 pounds of pork.

With live hogs selling at $40 per 100 pounds (45 kilograms) in Midwest markets, producers are losing about $35 on each 250 pound market hog.

If these trends continue, those figures would be mean a loss of more than $1 million a year for a midsized operation producing 30,000 hogs. Plain predicts producers will lose money throughout 2008 and much of 2009.

Steve Meyer, an economist at Paragon Economics in Des Moines, Iowa, said the losses could be worse than those experienced in 1998, largely because feed and fuel costs are much higher now. "There will be some people going out of business," Meyer said.

Part of the problem is a production glut that resulted from an expansion in the past five years, when hog prices were profitable.

"Things are not going to get a whole lot better until we raise fewer hogs," said Plain.