Pig virus poses a quandary for producers
DES MOINES, Iowa -- Pig production has exploded in Iowa, spiking 36 percent over the past two decades to about 20 million animals, providing most of the nation's growth.
But a new virus that's slashing pig inventories by millions nationally and pushing prices to record highs has producers uncertain about expanding.
"Producers are in a pickle," said Steve Meyer, president of Paragon Economics in Adel, Iowa. "We've never faced anything like this before."
The market is telling producers to boost inventories: Low supplies have driven prices 40 percent higher in recent months. That would help bacon lovers, who've been slammed with skyrocketing prices for their salty, crunchy addiction.
"Record profitability is a strong incentive to expand," said Dermot Hayes, an Iowa State University agribusiness economist.
Producers could face a supply glut, however, if they expand and a vaccine is developed that eradicates the disease that has killed an estimated 8 million piglets. The federal government announced plans in Des Moines last week to invest $30 million to battle the disease, including efforts to develop a vaccine.
"The nightmare situation is that the industry responds to replace the animals ... then there's a solution to the disease and we've got way too many pigs. We'd have a real problem," said Meyer, who expects producers to hold off a year or so before making a decision.
Analyst Rabobank International projects that the porcine disease called PEDv will cut hog production in the U.S. up to 7 percent this year and hit a nearly three decade low.
The virus, nearly 100 percent fatal to piglets, poses no threat to other animals or humans. And pork products remain safe for consumers, officials say.
It's already impacting suppliers such as Tyson, the nation's largest meat processor. The Arkansas-based company said last month it expects a 4 percent reduction in pork supplies.
Paragon's Meyer expects Midwest processors to scale back production as supplies tighten, possibly beginning this month. Already, Hormel Foods said it is cutting production at a Nebraska plant to four days a week. Tyson said in May it would scale down production more than usual this summer, a typically slower processing time.
Tight supplies have led to record prices for lean hogs, hitting a new high in April. Prices have retreated but remain strong.
Expansion signals are strong in Iowa, the nation's leader in pig production, with nearly 2.5 times more pigs than the next closest producer, North Carolina at 8 million animals.
The reasons for Iowa's strong pig growth is clear, Meyer said.
"Corn, corn, corn," he said. "Iowa is the No. 1 corn producer and the No. 2 soybean producer. To grow pigs, you have to grow feed," which includes soybean meal.
Feed combined with processing, plus millions of crop acres to use the manure, makes Iowa the most profitable place in the nation to raise pigs, said ISU's Hayes.
Cargill's Martin said the company expects long-term pork demand to be strong — and for PEDv to be a short-term disruption to supplies.
Martin declined to detail the Minneapolis-based company's growth plan, saying it's proprietary. But three years ago, Cargill invested $33 million to buy a 21,500-acre Texas sow operation to provide pigs for Midwest feeding operations. And this year, Cargill is sinking $29 million into a new feed mill in Hedrick, just north of Ottumwa.
Meyer said real per capita expenditures for pork were up 5.6 percent last year. It's only slightly lower so far this year. "The demand situation is excellent," he said.
Rob Manning, a producer in central Iowa, is building a new pig barn, adding nearly 2,500 animals. Ask why, and he points to the thousands of people lining up for bacon at festivals like Des Moines' Blue Ribbon Bacon Festival.
"It's demand, pure demand," he said.