Flu hits as U.S. hog industry struggling to recover

CHICAGO (Reuters) - For America’s hog producers, “swine flu” could not have come at a worse time.

Pork producers have been losing money since late 2007, hit first by record high feed prices and later by a recession that hurt demand for hogs and pork.

The flu -- which has no connection to pigs other than containing swine flu genetic sequences -- triggered bans on U.S. pork and caused hog prices to fall about 10 percent this week.

On Thursday, the World Health Organization dropped the swine flu name in favor of the less prejudicial Influenza A H1N1. But the damage has been done, hog producers said.

“I wish it had been done before. You can’t put the genie back in the bottle,” said Richard Ellinghuysen, vice president of Omaha-based Producers Livestock.

Hog producers had been looking forward to profits this spring and summer for the first time in 19 months due to a smaller herd and less pork production, but this week’s sudden drop in hog prices caused by the flu dimmed those chances.

Shares of Smithfield Foods Inc, the largest U.S. hog and pork producer, were down 16 percent for the week as bans on the pork imports and lower hog prices worried investors.

The flu has killed up to 176 in Mexico, sickened dozens more in the United States and around the world. It is transmitted by humans, not by hogs or pork.

“There are some who are at the end of their operating capital. They were looking at May, June and July as the first positive cash flow months since the fall of 2007,” said Steve Meyer, economist with Paragon Economics.

If producers don’t make money in the next three months, Meyer said many will go out of business.

At the Chicago Mercantile Exchange, where hog prices are set daily, prices dropped 8 to 10 percent this week as investors aggressively sold the market when countries started banning imports of U.S. pork.

“We were just coming out of a 19-month period of losses as it is. There hasn’t been any profitability. Now with this flu. it’s a pretty major concern,” said Kansas hog farmer Ron Suther, who maintains a barn of about 300 sows, selling about 5,400 hogs a year.

The National Pork Producers Council said that since September 2007 the hog industry has lost $3 billion to $3.5 billion in equity.

“They are just looking at trying to keep themselves in business for the next few months,” Jennifer Greiner, the NPPC’s chief veterinarian, said of producers. “The bankers are saying, ‘Guys, this is the last straw.’ “

The industry last year, on average, lost $22 per hog, she said.

The months of losses already had producers quitting or paring herds. The U.S. hog herd on March 1 was nearly 65.4 million head, down 3 percent from a year earlier.

“There is a fear in the marketplace,” said Roy Huckaby, who handles hedge business for hog operators and is with The Linn Group in Chicago

“You’ve got people who are throwing in the towel and whole operations for sale ... people are going to declare bankruptcy, just getting out of the business,” he said.

While the U.S. hog and pork industries are not to blame for the flu, they have been hurt as countries banned imports of U.S. pork, which sent hog prices sharply lower.

“I think our pigs have lost $8 a value a piece just since Monday just based on fear and a lack of knowledge of the facts,” said Kansas producer Suther.

The U.S. Meat Export Federation estimates the bans cut U.S. pork exports by 8 to 12 percent. The United States had been expected to export about 18 percent of its pork this year.

Blame for that lost business has been linked to the name swine flu, even those hogs or pork do not spread it.

“If you want to know how hog producers feel, it would be like if someone with your name robbed a local bank and your picture was pulled out of an old file and stuck in the newspaper article,” said Paragon’s Meyer.

Additional reporting by Michael Hirtzer and Christine Stebbins in Chicago, and Carey Gillam in Kansas City; Editing by Lisa Shumaker