AGRICULTURE
Defeat at Pork Chop Hill

Hog farming had long been a solid, silk-purse business, until this autumn's price collapse

By Peter Annin

Every week a tractor-trailer lurches away from the Hankes family's 700-acre farm near Fairbury, Ill., filled with pigs. The truck's cargo may be odoriferous, but it has a proud tradition as one of the most dependable commodities in the farm belt. And for 25 years, investing in the barnyard's smartest animal has been very good to Ray and Ellen Hankes. So good, in fact, that just four years ago they substantially increased the size of their Thrushwood Farms hog operation. Now, with 900 sows and 50 boars, the Hankeses ship out 15,000 pigs per year. The creatures have paid a lot of bills over the years, and put two kids through college. As Ray likes to say, "The pig pays for everything."

Or at least it used to. In recent weeks something has gone terribly wrong in pork country. Overproduction has slaughtered the hog market almost overnight, driving prices down to 10 cents per pound, the lowest in 34 years. Medium-size farmers like Hankes are now hemorrhaging between $10,000 and $15,000 per week, and don't know how much longer they can hold out. Neil Harl, an Iowa State University economist, says prices could remain low for six more months. "For pork producers," Hankes says, "this makes the farm crisis of the '80s look like a powder-puff derby."

The problem is simple: too many pigs. Supply in 1998 is up 9 percent, but demand is up only 7 percent. This might not sound like much, but it has overwhelmed slaughterhouses, which have been running at maximum capacity for eight weeks. The bottleneck, ironically, started when many slaughterhouses closed down 18 months ago, when supply was low--and prices high. Now, with the opposite scenario, it takes too long and costs too much for new slaughterhouses to go online quickly. Normally, this Economics 101 ebb and flow would have worked itself out. Pork markets have always been cyclical, with a polite self-correcting mechanism: when prices were high, small diversified farmers would jump into the pork business for a while. When oversupply moved prices back down, they'd jump back out.

But in the 1990s everything changed with the spread of corporate, industrial-size hog operations. One example: North Carolina's inaptly named Murphy Family Farms has an unheard-of 330,000 sows at several megafarms spread across the country. Behemoths like these have already sparked controversy for their horrible odors and environmental costs, but they also played havoc with the marketplace. Such giant farms are expensive to build and operate. Producers like Murphy have too many fixed costs to cut production when prices plunge--so they just keep churning out piglets. The smaller farmers have already fled the market, going back to their corn and soybeans, but medium-size family hog farmers like the Hankeses, who increased production in recent years to remain competitive with their giant rivals, are stuck. Some fortunate producers--many of them corporate--are locked into contracts with slaughterhouses, protecting them from huge losses. The rest of the large operators and family farmers are stuck in a game of chicken as oversupply continues to devastate prices.

Meanwhile, the farmers in this $64 billion industry are trying to get somebody to pay attention. Ron Mohr of Baldwin, Iowa, recently put an ad in his local paper announcing that prices were so low he'd give away some of his hogs free. The National Pork Producers Council has made frantic pleas to Washington. This groveling doesn't come easy: pork farmers take pride in their historic independence from government supports. But they're desperate. "People have worked all their lives to build equity," says the Pork Producers' Al Tank, "and in just a few days, it all melts away." There's not even a silver lining for consumers searching for a holiday ham. Meat counters are traditionally a high-profit grocery department, and many retailers aren't passing on the discount, according to the Agriculture Department. Last week farmers were getting less than a third of what they needed to break even, but nationwide, pork is still averaging $2.30 per pound, down just five cents from a year ago.

Now, when that truck leaves the Hankeses' driveway every week, it takes thousands of dollars in losses with it. Ellen Hankes sits at the kitchen table in her 125-year-old farmhouse. She can't recall a tougher time. "It's like going to work every morning," she says, "and paying your employer instead of having your employer pay you."