Minnesota livestock producers hoping for hog heaven

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: May 8, 2010 - 9:07 PM

Prices for the meats have risen nicely in recent months, and for the first time since 2007, many weary producers should be profitable this year.

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Rick Grommersch checked one of the hog barns on his Nicollet, Minn., farm. “We’ve been beaten down the past couple of years pretty hard,” he said of hog prices.

Photo: Glen Stubbe, Star Tribune

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NICOLLET, MINN.

In 35 years of farming, Rick Grommersch had never seen anything like it -- corn out of the ground in April. By month's end, some sprouts were already ankle-high. "We're off to a good start," Grommersch said as he strode through the cornfield on his hog farm.

Corn is the key ingredient in hog and cattle feed, and with any luck, those early corn shoots will prove a metaphor for Grommersch and legions of Minnesota livestock producers.

While consumers have been enjoying lower-priced pork and beef, hog and cattle farmers have gotten hammered. Grommersch hasn't made a profit since 2007, and he's had to dip into savings normally earmarked for vacations, home improvements or even his kids' college education.

In 2009, Minnesota farm income hit its lowest level since 2001, while experiencing its biggest annual decline in almost 30 years -- 63 percent -- and hard times on hog and cattle farms were a key culprit.

Supply and demand was out of whack, with the bleak global economy denting demand for pork and beef without a corresponding decline in production by farmers. The price of corn remained relatively high. And to top it off, pork producers got nailed by fear of the H1N1 virus -- aka swine flu -- even though it couldn't be spread by eating pork.

But this year, demand is picking up, while the supply of cattle and hogs has fallen. Prices for the meats have risen nicely in recent months, and for the first time since 2007, many weary producers should be profitable this year. "The hog guys, the cattle guys -- they were really dealt a tough hand," said Michael Swanson, an agricultural economist at Wells Fargo. "Things are finally breaking their way."

In 2009, every sector of Minnesota's farm economy took a hit. But crop farmers were coming off a tremendous 2008 and despite a 55 percent decline in farm earnings last year, still managed to post a median income of $60,101, according to an annual study by the Minnesota State Colleges and Universities system and the University of Minnesota Extension Service.

The situation was much bleaker in livestock. Cattle producers suffered losses for the second consecutive year in 2009, while many hog farmers also lost money or made very little, according to median incomes in the schools' survey. Indeed, hog farmers, after making only $4,876 in 2008, lost $73,525 in 2009.

"We've been beaten down the past couple of years pretty hard," Grommersch said. "I would say it was probably as bad as it gets. People are sort of licking their wounds."

A finishing touch

Pigs are big in Minnesota. They comprise the state's third biggest agricultural sector after corn and soybeans, and Minnesota is the nation's third-largest hog producer, according to statistics from the Minnesota Department of Agriculture.

Grommersch's family has been knee-deep in hog production since the 1940s, when his grandfather bought a parcel of land in Nicollet County. Today, Rick and his brother Ron raise hogs on several locations, mostly in Nicollet County, churning out about 16,000 pigs for slaughter annually -- a moderate-sized operation.

Two hog barns sit on the original Grommersch property, and hogs are cycled through them on a year-round basis.

The Grommersches belong to a network of independent farmers who together farrow their pigs, giving them economies of scale. When the animals weigh about 60 pounds, they're trucked to the Grommersches' finishing barns, where they feast on a mix of ground corn and soybean meal. When the pigs leave for slaughter after about 115 days, they weigh 275 pounds or so.

Lean times

The problems for livestock producers started in 2008. Back then, hog prices were relatively strong, but pork producers were hobbled by record high corn prices, which pushed up their costs. Last year, corn prices fell about $1 to an average of $3.75 per bushel, but were still above the $2.68 average per-bushel price of 2000 through 2009, said Wells Fargo's Swanson.

To help control feed costs, many livestock producers grow their own crops. Grommersch, for instance, farms 1,100 acres, mostly devoted to corn. But farmers, of course, have no control over demand, and it went south in 2009, courtesy of the weak global economy. "2009 saw the greatest global per capital GDP decrease in 30 years, and that absolutely has a huge impact on the environment for food," Swanson said.

Exports of both pork and beef fell, a situation only exacerbated for hog farmers by the outbreak of H1N1 influenza, known as swine flu because it originated in pigs. "As if enough things weren't going bad, that popped up," Grommersch said.

Last year, hog producers' production costs per pig were $135 on average, well above the average $105 per head they received in revenue, said Mark Greenwood, a swine specialist at Mankato-based lender AgStar. Bankers hit a point where they couldn't keep extending credit to some hurting hog farmers, he said.

Grommersch was fortunate to get the credit he needed from his longtime lender, ProGrowth Bank in Nicollet. "You become really good friends with your banker," he said.

But then Grommersch hadn't expanded in recent years, and wasn't deep in debt already. Still, he cut back production one-third last year to stem his losses. And that field cultivator he'd planned to replace last year at a cost of $30,000 -- forget about it.

Some hog farmers got out of the business all together. According to the state universities' annual survey, the number of pig finishing operations -- akin to Grommersch's -- fell from 133 in 2007 to 89 in 2009.

Many were simply unwilling to refinance farm land they'd already paid off, said Dave Preisler, executive director of the Minnesota Pork Producers Association. "They just made the choice that it wasn't worth the risk."

Ever optimistic

On a recent windy day, Grommersch's hog barns are a din of squeals, snuffles and snorts, redolent with manure, of course, but well ventilated in the breeze. The muscular pink and white hogs -- about 800 in an 8,400-square-foot barn -- greet Grommersch and his visitors with a quizzical look. (They're curious animals, the farmer explained.)

"Right now, it looks a little tighter [in the pen] because they're ready for market," he said. Indeed, these hogs were scheduled within the week to be shipped to a Tyson Foods plant in Storm Lake, Iowa, and turned into pork chops, ham and bacon. Grommersch will book a profit on the shipment, a new trend.

He has been back in the black for the past two months after two consecutive years of losses.

Export demand has improved so far this year, while supply of hogs and cattle is falling. The U.S. inventory of all hogs and pigs on March 1 was down 3 percent from a year ago, and down 2 percent from just three months earlier. "Lower hog supplies, at a time when a recovery of pork demand is expected to get underway, foreshadows continued higher hog prices," according to the U.S. Department of Agriculture's most recent livestock outlook.

Indeed, the June futures contract for lean hogs on the Chicago Mercantile Exchange is 28 percent higher than its low point last August.

Nowadays, hog farmers are making $165 per pig, compared with their $135 cost of production, said AgStar's Greenwood. There's been similar good news -- from a producers' standpoint -- in the cattle markets.

For the most part, those higher producer prices haven't made it to the grocery aisles, where consumers have gotten used to good deals on pork and beef. Pork prices fell 2 percent last year, the biggest annual drop since 1998, and they've continued to decline through March, according to data from the U.S. Bureau of Labor Statistics.

"Demand is pretty healthy right now," Grommersch said. "But will consumers back off once higher prices we are seeing now hit the grocery store?"

He can't be sure of course, but he's reasonably confident that this year, they'll be money in pig farming.

Mike Hughlett • 612-673-7003

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