In this year of rising food prices and skyrocketing commodity costs, the profits raining on farms across the country have not fallen evenly.
Just ask a pig farmer.
Faced with runaway feed and energy costs, the pork industry has gone months without turning a profit. Analysts say it will be a year, possibly longer, before prices and costs break even.
The fallout will shutter some pig farms, shrink others and raise the cost of pork at supermarkets. It also has members of the Minnesota Congressional delegation asking the federal government to help shore up farmers' losses.
"Consumers are going to get drilled in this," said Brian Buhr, an agricultural economist at the University of Minnesota. "You can see it in eggs and milk. Meats are just a little bit behind. Eventually, consumers are going to pay more for food."
Several problems have befallen pig farms, from higher energy costs to the success of a vaccine introduced last year that has more pigs surviving to adulthood, increasing the supply.
Yet far and away the worst culprit has been the cost of corn, the primary diet for American pigs. Corn futures for May delivery broke through $6 a bushel in trading on the Chicago Board of Trade this week, double the cost from a year ago. A farmer who paid $52 per pig for feed last year now pays closer to $105.
"It puts us at a new cost plateau that we don't see ending," said David Preisler, executive director of the Minnesota Pork Producers Association.
The state's $2 billion pork industry is the nation's third-largest, responsible for about 22,500 jobs.
The deepening crisis brought dozens of farmers together last month at the Holiday Inn in Mankato for an emergency meeting to talk about how to cope. Farmers there urged one another to reduce the size of their sow herds, a move that would reduce pig births and eventually tighten supplies.
Virginia-based Smithfield Foods, the largest pork producer in the world, announced this year that it would reduce its sow herd by 4 to 5 percent. A nationwide reduction of 8 to 10 percent of the 6 million sows on U.S. farms would take six months to slow production, so prices won't begin to rise until later this year.
Meanwhile, Sen. Amy Klobuchar, D-Minn., met Tuesday with U.S. Department of Agriculture Secretary Ed Schafer to urge a federal buyout of some of the pig market, which would likely send pork to food shelves and food banks. Canadian regulators have already taken a similar step.
Schafer "had just met with a number of the pork producers, and he was open to all of these issues," Klobuchar said in an interview after her meeting.
Losing $45 a pig
The crisis comes at a volatile time in U.S. agriculture, with crop farmers raking in record revenue for corn, soybeans and wheat, thanks to high prices. The good news from those farms means pain for farmers who raise pigs, each of which eats 10.5 bushels of corn and 3.8 bushels of soybeans in a lifetime, according to the Minnesota Pork Board.
Most farmers today lose $40 to $50 per pig, according to Buhr.
"Right now there's a lot of older producers figuring this is the time to get out, just because, as much as they would probably lose in the next year it would take five to six years to get it back," said Mark Whitney, an educator in Mankato with the University of Minnesota's extension service.
That's the story at John Vaubel's farm in Mapleton, where he's raised pigs for 34 years.
"We're getting rid of the sow herd," said Vaubel, 63.
He planned to retire in a few years, but moved that up to at least a partial retirement this year, when corn prices rose to $5.50 a bushel.
"My wife said, 'We're either going to sell the pigs or sell the farm, and we're not going to sell the farm,' " he said.
His farm once raised 50,000 hogs a year and employed a dozen people. After he scales back, he'll hire just three people and raise 18,000 to 20,000 hogs a year, about as much as he can feed himself with corn raised on about 750 acres of his 1,100-acre farm.
Vaubel said three new ethanol plants in Janesville, Fairmont and Welcome, all of them large by industry measures, are under construction within 40 miles of his farm.
"Something's going to have to give here on the corn supply," he said. "There's just not going to be enough corn."
Large commercial operators have been hit hard, too.
Tyson, a major poultry, pork and beef processor, reported a $5 million loss in its second quarter, prompting CEO Dick Bond to call for a cut or abolishment of federal tax subsidies for the ethanol industry, which he blames for the explosion in feed costs.
Smithfield bumped costs up 17 percent in the most recent quarter.
Grain costs added $24.7 million to Austin, Minn.-based Hormel's turkey operations in the first quarter this year, which ended Jan. 27, compared with the year-ago period, according to the company's filing with the U.S. Securities and Exchange Commission.
Lower hog prices mitigated some of the pain at Hormel, because the company didn't have to pay as much for the pork it turns into Spam and other products, but strong export and retail sales were not enough to overcome higher feed costs, the company noted, adding that tough conditions should continue through at least October, the end of its fiscal year.
Neither Cargill nor Hormel, both of which are pork processors, would comment for this report.
Selling to China
The situation would be much worse if not for foreign buyers. Exports have been a savior for the industry, with foreign markets buying 60,000 hogs a day, according to the U.S. Meat Export Federation.
Pork exports have soared in recent years -- up 75 percent since 2003 -- thanks to the low value of the dollar and a rising demand for meat in emerging markets. Exports to China alone grew 287 percent, to 164.7 million pounds in the first two months of 2008, compared with a year ago, in part because of a sickness on Chinese pig farms. China in February became the No. 1 buyer for U.S. pork, beating out Japan.
Pig farmers had more than three years of profitable times before the recent troubles began, and that will help them weather what's ahead, said Mark Greenwood, a swine specialist for AgStar, a Mankato-based lender for the hog industry. Still, farmers today are losing an average of 4 to 5 percent of their equity each month. Six months from now, that could mean serious problems.
"If you continue to erode at 4 percent to 5 percent equity per month, then lenders have to make decisions," Greenwood said.
Matt McKinney • 612-673-7329