Farm Horizons, February 1999
Pork prices: Seeking the silver lining
By Andrea Vargo
A pitiful price for pigs has many hog farmers in the area looking for another income. Independence is one of the things that created the current crisis in pork prices, said Darrel Diers of Waverly.
Farmers don't work too well together, sometimes. They have overproduced, he said.
Although it would appear as a simple case of overproduction, said Diers, a lot has been written about the loss of available packing plants.
Hog farmers in Canada are also shipping hogs to the plants in Minnesota and other northern tier states.
This drives the price down, because there are too many animals for the packing plants to handle, he said.
Contracting is saving some of the producers, said Diers. This is a way of averaging out what a producer gets for his product.
For example, Diers explained, Hormel may write a contract with an individual producer for $35 to $38 per hundred weight for the hogs.
The producer must guarantee a certain number of animals per year, and the weight for each animal should be about 230 pounds, he said.
Recently, the price was $21 to $22 per hundred weight. The difference between the two prices goes into a ledger account for the producer. If market prices are higher than the contract, the account gets a plus number; if the prices are lower, the account gets a minus number.
Hormel would pay the contract rate for the hogs and take the difference between the contract rate and the actual lower market price out of the producers account.
This keeps the producer from having really high returns, but also keeps him from having really low returns.
The weight of the hog is also critical to getting top price for it with this contract.
"When we started farming 20 years ago, the top acceptable weight was about 200 pounds. Now it is 230 pounds," he said.
Back then, Hormel needed a lighter weight hog for the cure 81 hams. Now the genetics have changed on the hogs because of the health consciousness of the consumer. The industry has worked hard to eliminate excess fat from the hog.
The carcasses are being boned out and tenderness is not a concern anymore. Hams are not a big item, like they used to be, he said.
Genetics was the topic of most seminars for a long time in an effort to make the hogs leaner, said Diers, but now the topics are manure handling and labor.
So, with the weight, price, and numbers of hogs set for a contract, there is also a time factor.
Perhaps this contract is set for seven years. At the end of that time period, the final numbers are the ones that count and the packer and the farmer settle the difference.
This is just one of many different types of contracts.
One hog buyer told Diers that 50 percent of the hogs that go to the packing plants are contract hogs.
Diers does not contract his hogs. In February of 1998, he sold 7,350 pounds of live hogs for $2,847.60, at the end of December, he sold 7,260 pounds for $752.40.
The difference is staggering, and it is easy for people to see why the pork producer can't afford to stay in business, he said.
The purchase of Diers' new equipment was supposed to make more money for him.
"We bought 5-by-7 foot, raised farrowing pens with wire flooring, and built flush pens underneath. The manure runs into a septic tank outside the building.
"With our old equipment, we used to farrow close to 1,400 pigs. With the new equipment we bought, we should have gone up to 2,000.
"We used to finish close to 1,000 pigs per year and sold the rest to others to finish to market weight," Diers said.
Those sows and their piglets supported Diers and his family for years.
"Farmers used to say 120 sows would support a family. Now I think that number may start at 600-700 sows," he said.
"Bigger is not necessarily better, but it is what this country seems to want," said Diers.
"Saving the small farmer is no different than saving the small grocery or variety store. If you save one, you have to save them all," he said.
"Having said all that, I am not in favor of large farms. Russia tried it, and it did not work well," said Diers.
He is not interested in dairy cattle, so will not enter into that part of the corporation, once the pigs are gone.
The new farrowing pens will house baby calves for the dairy operation on the farm, and all the hogs are being sold.
Diers said there is more to his situation than hog prices, although that seems to be the final piece of the puzzle.
Diers has farmed with his family in the Diers Corporation for many years, but the recent disastrous hog prices were the turning point for a change in his future.
So, with the depressed prices of hogs driving many of the farmers out of the pork-producing business, Diers has decided to join the ranks of former hog farmers.
Life is a more complex situation than just the hog prices, and Diers has harbored a dream that doesn't include pig pens.
He dreams of serving a rural church community, perhaps as a lay minister.
That doesn't mean he doesn't want to work the fields or wants to get out of farming completely.
Diers just wants a more flexible lifestyle that retains some of his independence.
Diers will move out of the life he has grown accustomed to and into a new adventure. He hopes to be able to retain some connection to the land and pursue some of his dreams.
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