[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW THE ECONOMIC CONDITIONS FACING THE PORK INDUSTRY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
LIVESTOCK, DAIRY, AND POULTRY
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
OCTOBER 22, 2009
__________
Serial No. 111-33
Printed for the use of the Committee on Agriculture
agriculture.house.gov
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COMMITTEE ON AGRICULTURE
COLLIN C. PETERSON, Minnesota, Chairman
TIM HOLDEN, Pennsylvania, FRANK D. LUCAS, Oklahoma, Ranking
Vice Chairman Minority Member
MIKE McINTYRE, North Carolina BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa JERRY MORAN, Kansas
JOE BACA, California TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California SAM GRAVES, Missouri
DAVID SCOTT, Georgia MIKE ROGERS, Alabama
JIM MARSHALL, Georgia STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South RANDY NEUGEBAUER, Texas
Dakota K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas JEFF FORTENBERRY, Nebraska
JIM COSTA, California JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER, BILL CASSIDY, Louisiana
Pennsylvania CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
SCOTT MURPHY, New York
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho
______
Professional Staff
Robert L. Larew, Chief of Staff
Andrew W. Baker, Chief Counsel
April Slayton, Communications Director
Nicole Scott, Minority Staff Director
______
Subcommittee on Livestock, Dairy, and Poultry
DAVID SCOTT, Georgia, Chairman
JIM COSTA, California RANDY NEUGEBAUER, Texas, Ranking
STEVE KAGEN, Wisconsin Minority Member
FRANK KRATOVIL, Jr., Maryland BOB GOODLATTE, Virginia
TIM HOLDEN, Pennsylvania MIKE ROGERS, Alabama
LEONARD L. BOSWELL, Iowa STEVE KING, Iowa
JOE BACA, California K. MICHAEL CONAWAY, Texas
DENNIS A. CARDOZA, California ADRIAN SMITH, Nebraska
BETSY MARKEY, Colorado DAVID P. ROE, Tennessee
SCOTT MURPHY, New York
WALT MINNICK, Idaho
Chandler Goule, Subcommittee Staff Director
(ii)
C O N T E N T S
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Page
Boswell, Hon. Leonard L., a Representative in Congress from Iowa,
submitted article.............................................. 63
Goodlatte, Hon. Bob, a Representative in Congress from Virginia,
opening statement.............................................. 3
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, opening statement................................... 3
Prepared statement........................................... 4
Scott, Hon. David, a Representative in Congress from Georgia,
opening statement.............................................. 1
Prepared statement........................................... 2
Smith, Hon. Adrian, a Representative in Congress from Nebraska,
prepared statement............................................. 4
Witnesses
Scuse, Michael T., Deputy Under Secretary, Farm and Foreign
Agricultural Services, U.S. Department of Agriculture,
Washington, D.C................................................ 5
Prepared statement........................................... 7
Submitted questions.......................................... 63
Butler, Donald P., President, National Pork Producers Council;
Director of Government Relations and Public Affairs, Murphy-
Brown LLC, Warsaw, NC.......................................... 22
Prepared statement........................................... 23
Greenwood, Mark, Vice President, Agri Business Capital, AgStar
Financial Services, Mankato, MN................................ 32
Prepared statement........................................... 33
Submitted questions.......................................... 126
Buhr, Ph.D., Brian, Professor, Head and E. Fred Koller Chair in
Applied Economics, University of Minnesota, St. Paul, MN....... 38
Prepared statement........................................... 39
Submitted questions.......................................... 126
Brenneman, Rod K., President and CEO, Seaboard Foods LLC, Shawnee
Mission, KS.................................................... 50
Prepared statement........................................... 52
Moody, David, Chairman and Past President, Public Policy
Committee, Iowa Pork Producers Association, Nevada, IA......... 54
Prepared statement........................................... 56
Submitted questions.......................................... 126
HEARING TO REVIEW THE ECONOMIC CONDITIONS FACING THE PORK INDUSTRY
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THURSDAY, OCTOBER 22, 2009
House of Representatives,
Subcommittee on Livestock, Dairy, and Poultry,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10:05 a.m., in
Room 1300 of the Longworth House Office Building, Hon. David
Scott [Chairman of the Subcommittee] presiding.
Members present: Representatives Scott, Kagen, Holden,
Boswell, Baca, Markey, Murphy, Minnick, Peterson (ex officio),
Goodlatte, King, Smith, Roe, and Moran.
Staff present: Alejandra Gonzalez-Arias, Chandler Goule,
Craig Jagger, James Ryder, April Slayton, Rebekah Solem,
Patricia Barr, John Goldberg, Tamara Hinton, Pete Thomson,
Jamie Mitchell, and Sangina Wright.
OPENING STATEMENT OF HON. DAVID SCOTT, A REPRESENTATIVE IN
CONGRESS FROM GEORGIA
The Chairman. This hearing of the Subcommittee on
Livestock, Dairy, and Poultry to review the economic conditions
facing the pork industry will now come to order.
I am going to start out by just welcoming everyone and
making a few opening statements, and then we will proceed from
there. This is indeed a very important and a very timely
hearing. We have many challenges facing our pork industry. As
always, I am very appreciative of all of you for taking the
time during a very busy week to help us examine the economic
conditions facing the pork industry.
Over the last several years, the pork industry has suffered
a very serious decline in its financial state. It seems as
though one calamity after another struck: high commodity
prices, recession, the closing of export markets because of
H1N1. As such, the pork industry has lost over $5 billion,
nearly \2/3\ of producer equity. Clearly, if this situation
persists, we will lose producers altogether at an ever-
increasing rate, which, in my opinion, is an unacceptable
outcome. Something must be done both in the short term and the
long term in order to aid the pork industry in turning itself
around.
Just yesterday our full Committee on Agriculture reported
out a bill to address speculation in the commodities markets. I
am hopeful that Congress will pass this legislation into law
soon so that the price shocks we have experienced in commodity
markets will be mitigated and producers will have more
predictability, reliability and accurate pricing of their
inputs.
As I said earlier, the decline in economic condition of the
pork industry is due to a number of causes, not simply input
costs, so we must examine closely these other factors as well.
For instance, the widespread public misinformation both
domestically and internationally regarding H1N1, the influenza,
that has had a direct, demonstrable and severe impact on
producer income. Unfortunately, the general public was led to
believe that pork was not safe to eat and so changed their
purchasing habits. Nothing could be further from the truth. Let
me reiterate once again: Our pork is safe to eat. Also, several
of the largest export markets for pork, Russia and China, for
example, used the H1N1 outbreak to erect artificial trade
barriers against our U.S. pork product. I feel that we as
Members of Congress need to press United States Trade
Representative Kirk and the rest of the Obama Administration to
hold these trading partners--and I use the term ``partner''
loosely--to hold them accountable for their reactionary
behavior and press them to use sound science rather than
misinformation to fully reopen their markets to U.S. pork
products.
These are just some of the issues the pork industry is
facing currently, and I am sure our distinguished panelists
will lay out numerous concerns in addition to those I have
mentioned here. This Subcommittee is open to hearing everyone's
opinion on what is hindering the pork industry currently, as
well as hearing any ideas on how we may possibly assist this
very vital and important industry in maintaining its long-term
viability.
In closing, I just want to remind our Members and the
public that this hearing is not just about H1N1. There are so
many other issues that are affecting the pork industry and it
is about all of the factors that are affecting the pork
industry. I saw in the press just this morning that this
Committee was having an H1N1 hearing today, and that is not
true. Certainly we will deal with the H1N1 crisis, but it is
definitely a topic that I expect us to discuss very thoroughly
in addition to all of the other issues that are facing our pork
industry in all of its entirety.
[The prepared statement of Mr. Scott follows:]
Prepared Statement of Hon. David Scott, a Representative in Congress
from Georgia
I would like to welcome everyone once again to the Subcommittee on
Livestock, Dairy, and Poultry. As always I very much appreciate you all
taking time out during a very busy week to help us examine the economic
conditions of the pork industry.
Over the last several years the pork industry has suffered a
serious decline in its financial state. It seems as though one calamity
after another has struck; high commodity prices, recession, the closing
of export markets because of H1N1. As such the pork industry has lost
over $5 billion, nearly \2/3\ of producer equity. Clearly, if this
situation persists we will lose producers altogether at an ever
increasing rate, which in my opinion is an unacceptable outcome.
Something must be done both in the short term and long term in order to
aid the pork industry in turning itself around.
Just yesterday the full Committee on Agriculture reported out a
bill to address speculation in the commodity markets. I am hopeful that
Congress will pass this legislation into law soon, so that the price
shocks we've experienced in commodity markets will be mitigated and
producers will have more predictable, reliable and accurate pricing of
their inputs.
As I said earlier, the decline in the economic condition of the
pork industry is due to a number of causes, not simply input costs. So
we must examine closely these other factors as well. For instance, the
widespread public misinformation both domestically and internationally
regarding H1N1 influenza has had direct, demonstrable and severe
impacts on producer income. Unfortunately the general public was led to
believe that pork was not safe to eat and so changed their purchasing
habits. Let me reiterate once again: PORK IS SAFE TO EAT. Also, several
of the largest export markets for pork, Russia and China for example,
used the H1N1 outbreak to erect artificial trade barriers against U.S.
product. I feel that we as Members of Congress need to press U.S. Trade
Representative Kirk and the rest of the Administration to hold these
trading partners, and I use the term `partner' loosely, accountable for
their reactionary behavior and press them to use sound science rather
than misinformation, and to fully reopen their markets to U.S. pork
products.
But these are just a few of the issues the pork industry is facing
currently. I am sure our distinguished panelists will lay out numerous
concerns in addition to those I have mentioned here. This Subcommittee
is open to hearing everyone's opinion on what is hindering the pork
industry currently, as well as hearing any ideas on how we may possibly
assist the industry in maintaining its long term viability. With that I
turn to the Ranking Member, Mr. Neugebauer, for any opening remarks he
wishes to make.
The Chairman. And with that, now I will turn to our
substitute Ranking Member, Mr. Goodlatte, for his opening
comments.
OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN
CONGRESS FROM VIRGINIA
Mr. Goodlatte. Well, thank you, Mr. Chairman, and I very
much appreciate your calling this hearing today. I look forward
to hearing the testimony and responses to questions of our
witnesses and the Administration, the pork production sector,
agricultural credit and academia.
A review of the prepared testimony tells a story of
difficult economic conditions for the pork community. The
causes are many and varied. As we listen to our witnesses
today, I would ask that my colleagues pay particular attention
to the adverse effects on producers that are the result of the
actions of government, actions such as trade policies and
additional regulatory burdens like mandatory country-of-origin
labeling do not help, and in many cases hurt, the very people
represented today. As we go forward in our work considering
policy proposals like cap-and-trade, healthcare, antibiotic
legislation, energy policy, animal welfare, industry structure,
food safety, and changes to tax law, we should do it with
today's hearing in mind. The people before us today will tell
us about the sobering challenges they face. Each of us should
measure our future votes according to whether we are helping
them or contributing to their hardship.
Again, Mr. Chairman, thank you for calling this hearing
today. I look forward to gaining a better understanding of the
problems facing the pork sector and the suggestions that they
may have to help us address them.
The Chairman. Thank you, Mr. Goodlatte.
Now I would like to recognize our distinguished Chairman,
Mr. Peterson, for his opening statement.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE
IN CONGRESS FROM MINNESOTA
Mr. Peterson. Thank you, Mr. Chairman, and I want to
commend you and the Ranking Member for your leadership of this
Subcommittee and on this issue, and all our Members that
represent the areas that have pork production have been very
much focused on this. I want to commend the Administration for
doing whatever they can do to help with the situation. I think
they have been very responsive. We have a number of Members who
have really focused on this, Mr. Walz in my state, Mr. King,
Mr. Latham, the folks in North Carolina, people around the
country that have hog production. But I want to single out Mr.
Boswell. There has been nobody that has been more focused on
this, more interested, more on top of this than Mr. Boswell. He
used to serve as Chairman of this Subcommittee and I just want
to commend him for really stepping up to the plate on this, and
not only on the overall situation with the industry but on the
antibiotic issue.
So we have a lot of Members that are really paying
attention to this and are really focused on this, and I commend
all of them for their actions and hope that we can come up with
some solutions that will be helpful to the industry. Thank you.
[The prepared statement of Mr. Peterson follows:]
Prepared Statement of Hon. Collin C. Peterson, a Representative in
Congress from Minnesota
I want to thank Chairman Scott and Subcommittee Ranking Member
Neugebauer for calling today's timely hearing and for their leadership
on this Subcommittee. The situation facing the pork industry today is
serious, and we need to find both short and long term solutions to
stabilize the market for pork producers.
Since September 2007, the U.S. pork industry has lost an estimated
$4.6 billion in equity, with producers losing an average of more than
$21 for each hog marketed. Several factors have contributed to these
severe losses, including rising input costs and a worldwide recession.
Recently, the unreasonable reaction of our trading partners to the
outbreak of H1N1, specifically Russia and China, has only further
intensified the economic crisis facing the pork industry.
Responding to the current crisis, Secretary Vilsack has taken steps
to bring some relief to U.S. pork producers. USDA recently announced
that it will purchase $30 million of additional pork products this
year. We will continue to work with USDA in finding more ways to
support U.S. pork producers in the short term.
We also need to work with the U.S. Trade Representative Kirk to
open and expand export markets for U.S. pork. It is unacceptable for
our trading partners to deny access to U.S. pork products based not on
sound science, but on faulty politics.
I look forward to hearing from our witnesses today about how we can
best assist pork producers as they weather this economic storm. Thank
you for appearing today before the Subcommittee and thank you again,
Chairman Scott and Ranking Member Neugebauer for your leadership. I
yield back my time.
The Chairman. Thank you very much, Mr. Chairman.
Now we would like to welcome our first witness, and I will
request that other Members who have opening statements will
submit their opening statements for the record so the witnesses
can begin their testimony and ensure that we have ample time to
hear from our witnesses.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Hon. Adrian Smith, a Representative in Congress
from Nebraska
Good morning and thank you, Mr. Chairman, for holding this hearing
today ``to review the economic conditions facing the pork industry.''
As you know, over the past 2 years hog prices have declined due to loss
of exports in the global economic downturn and the drop in demand after
the H1N1 flu virus scare. Meanwhile, rising input costs and
environmental regulations continue to further burden livestock
producers. It is my hope this Subcommittee can explore robust solutions
to assist pork producers in these tough economic conditions.
While I am very pleased the U.S. Department of Agriculture has
announced approval to purchase an additional $30 million in pork
products this year, we must continue to work to ensure policies which
will strengthen our agriculture economy and provide real, long-term
stability for our nation's producers. Traveling throughout Nebraska's
Third District, I have organized a number of meetings with livestock
producers, which have provided me a chance to discuss the real impact
of increasing input costs and government mandates on those working on
the front lines of agriculture. In addition, increasing export markets
has long been a priority of mine, and I will continue to help
Nebraska's producers meet global marketplace demands.
I look forward to hearing the testimony of our witnesses, including
Deputy Under Secretary Michael Scuse who oversees, among many things,
the Foreign Agriculture Service (FAS). As you know, the FAS is directed
to foster economic opportunity for American farmers and U.S.
agriculture products abroad. Since exports are imperative for U.S. pork
producers, the recent announcements to expand the FAS development
mission must not come at the expense of the U.S. producers. Now more
than ever, our products must be as competitive as possible in the world
market.
Thank you, Mr. Chairman.
The Chairman. Our first witness this morning is Mr. Michael
Scuse, who is the Deputy Under Secretary for the Farm and
Foreign Agricultural Services at the U.S. Department of
Agriculture. Mr. Scuse, thank you very much for coming. You may
begin.
STATEMENT OF MICHAEL T. SCUSE, DEPUTY UNDER
SECRETARY, FARM AND FOREIGN AGRICULTURAL
SERVICES, U.S. DEPARTMENT OF AGRICULTURE,
WASHINGTON, D.C.
Mr. Scuse. Thank you, Mr. Chairman. If you don't mind, I do
have a statement.
Chairman Scott, distinguished Members of the Subcommittee,
I appreciate the opportunity to discuss the current economic
situation facing the pork producers and the programs delivered
by my mission area in the U.S. Department of Agriculture. As
Deputy Under Secretary for Farm and Foreign Agricultural
Services, I oversee three agencies: the Farm Service Agency,
the Foreign Agricultural Service and the Risk Management
Agency. I would like to take this opportunity to provide you
with an update on the pork market situation, our forecast for
the pork market, and my mission area's response to the sharp
downturn.
The reasons for the recent economic distress in the U.S.
hog sector are varied and complex, as you have stated. Some are
similar to the reasons for the distress suffered in the dairy
sector: over-expansion in response to higher than normal
profits in previous years, combined with recession-driven
declines in domestic and international demand. In addition, the
U.S. hog sector has also been unfairly linked to the emergence
of the novel H1N1 influenza, reducing demand for pork and pork
products. The hog sector, like dairy, is expected to improve
substantially over the next year as the breeding herd continues
to contract and domestic and international demand improves.
September 2009 was the 22nd month of losses on hogs
marketed since losses began accruing and the down phase of the
current hog cycle in October of 2007. Given 200 million
domestically produced hogs marketed during this 2 year period
from October 2007 through September 2009, losses to the hog
sector are estimated at approximately $4 billion. Losses are
expected to moderate from now through 2010 as demand increases
and hog supplies decline. Exports in the fourth quarter of 2009
are expected to be up 12 percent from over a year ago to nearly
20 percent of fourth quarter production, just below the record
25 percent of production in the second quarter of 2008. The
value of the U.S. dollar has fallen 10-30 percent against
several major currencies since earlier this year, which should
also help our exports. A return to domestic and global economic
growth should also improve profitability. Ongoing adjustments
on supply side are expected to also contribute to improved
profitability in the U.S. hog sector in 2010. USDA forecasts
that 2009 U.S. pork production will decline 1.45 percent from
2008 production, and 2010 production will be down an additional
2.5 percent compared to 2009.
I know that H1N1 has been at the forefront of our attention
since these past few months and days especially. To briefly
update you on the situation, USDA's National Veterinary
Services Laboratories, NVSL, has confirmed the presence of 2009
pandemic H1N1 influenza virus in a pig sample collected at the
Minnesota State Fair submitted by the University of Minnesota.
Additional samples are currently being tested. The infection of
the fair pig does not suggest infection in our commercial
industry. If we do detect the 2009 pandemic H1N1 influenza
virus in commercial swine, USDA will work with our state
partners, producers and their veterinarians to prevent the
spread of the virus, and we will continue to provide
information and updates as they become available. When it comes
to flu, swine are much like people: the vast majority recovers
without lingering health effects. Only those animals that have
fully recovered will be permitted to enter our food supply.
It is paramount to note that you cannot get infected with
the 2009 pandemic H1N1 influenza virus from eating pork or pork
products, as you stated, Mr. Chairman.
A number of our nation's trading partners have banned live
pigs, pork or pork products since the outbreak among human
beings. We will continue to urge countries to base any bans on
scientific evidence and in accordance with international
obligations.
USDA has taken many other actions to assist the pork
industry. The Secretary announced on September 3, 2009, USDA's
intention to immediately purchase up to $30 million in pork
products prior to October 1st. Since October 2008, AMS has
purchased about 100 million pounds of domestic pork products at
a cost of approximately $165 million for distribution to
Federal food and nutrition assistance programs. This includes
$28.9 million in funds authorized by the American Recovery and
Reinvestment Act of 2009.
The availability of credit is a critical factor to hog
producers during this stressful period. This Administration has
been proactive in efforts to assure that adequate credit is
available for farmers and our ranchers. Within weeks of taking
office, we aggressively sought additional funding for FSA farm
loan programs. The American Recovery and Reinvestment Act
provided an additional $173 million in direct operating loan
funding.
On August 12, 2009, Secretary Vilsack sent letters to all
FSA farm loan borrowers advising them of assistance available
if they are experiencing financial hardship. The Secretary also
sent a letter to FSA guaranteed loan lenders on the same day,
encouraging them to consider all possible options for loan
modifications under the FSA Loan Guarantee Program. We are
continuing to consider options and evaluate alternatives that
might provide financial relief to hog producers and other
farmers in financial distress.
USDA's Market Access Program and Foreign Market Development
Program help finance promotional activities for U.S.
agricultural exports. With MAP funds, the U.S. Meat Export
Federation promotes pork in Southeast Asia, the Caribbean,
Central and South America, Europe, China, Japan, Korea, Mexico,
Russia and Taiwan. USMEF also used FMD funds in program year
2009 for administrative costs for operating 13 foreign offices
that support U.S. meat export promotion activities, including
pork.
Despite the challenges in the past 5 years, U.S. pork
exports have nearly doubled and the proportion of production
exported jumped almost 11 percent. Much of the growth has
occurred in Japan, Canada, Mexico, China and Russia.
Two types of insurance for swine producers are available in
the Federal crop insurance program: the Livestock Risk
Protection and the Livestock Gross Margin Program Swine insures
against declining markets. So far in 2009, 29,000 head were
insured by LRP on 19 policies. The LGM for Swine insurance
provides protection against the loss of gross margin. So far in
2009, 126,000 head were insured with 62 policies.
In conclusion, I appreciate the opportunity to testify
before this Subcommittee today, and I look forward to working
with each and every one of you, Mr. Chairman and all Members of
this Committee, as we continue our hard work to ensure that
USDA is responsive to the needs of our pork industry. At this
time I will be happy to answer questions that, Mr. Chairman,
you or the Committee may have.
[The prepared statement of Mr. Scuse follows:]
Prepared Statement of Michael T. Scuse, Deputy Under Secretary, Farm
and Foreign Agricultural Services, U.S. Department of Agriculture,
Washington, D.C.
Chairman Scott, Ranking Member Neugebauer, and distinguished
Members of the Subcommittee, I appreciate the opportunity to discuss
the current economic situation facing pork producers and the programs
delivered by my mission area in the U.S. Department of Agriculture
(USDA). As Deputy Under Secretary for Farm and Foreign Agricultural
Services (FFAS), I oversee three agencies: the Farm Service Agency
(FSA), the Foreign Agricultural Service (FAS), and the Risk Management
Agency (RMA). I would like to take this opportunity to provide you with
an update on the pork market situation, our forecasts for the pork
market, and my mission area's response to the sharp downturn.
Background and Expectations for 2010
The reasons for the recent economic distress in the U.S. hog sector
are varied and complex. Some are similar to the reasons for the
distress suffered in the dairy sector: over-expansion in response to
higher than normal profits in previous years, combined with recession-
driven declines in domestic and international demand. In addition, the
U.S. hog sector has also been unfairly linked to the emergence of the
novel H1N1 influenza reducing demand for pork and pork products. The
hog sector, like dairy, is expected to improve substantially over the
next year as the breeding herd continues to contract and domestic and
international demand improve.
Hog production is cyclical, with a period of profits normally
inducing expansion, followed by a period of losses that induce
contraction. September 2009 was the 22nd month of losses on hogs
marketed since losses began accruing in the down phase of the current
hog cycle in October 2007. According to Dr. John Lawrence of Iowa State
University, a typical Iowa-Southern Minnesota farrow-to-finish
operation experienced monthly losses per hog marketed averaging about
$20 for the 24 months from October 2007 to September 2009, with losses
as high as $40-$46 per head in November and December 2008 (see chart).
Given 200 million domestically-produced hogs marketed during this 2
year period from October 2007 through September 2009, losses to the hog
sector are estimated at approximately $4 billion.
These losses compare to average monthly profits, calculated by Dr.
Lawrence, of $24.27 per head over the 43 months from February 2004 to
September 2007. Those profits were due to rapid increases in domestic
and export demand for pork, driven by strong worldwide economic growth
and a depreciating U.S. dollar. That period of profitability was a
contributing factor to the expansion of the hog sector in 2007. Annual
farrowings in 2007 increased 5.3 percent over 2006 farrowings, and in
the last half of 2007, farrowings were up 7.7 percent over farrowings
in the last half of 2006. In contrast, farrowings between 2004 and 2006
increased an average of only 0.6 percent annually. Moreover, imports of
live hogs from Canada increased 14 percent in 2007, to ten million
head, as Canada's hog sector also expanded, and represented over nine
percent of hogs slaughtered in the U.S. in 2007. Hog imports from
Canada began to drop below year ago levels in May 2008 and are down 32
percent so far in 2009. Both countries have continued to experience
increases in litter size, with litter size in the United States
increasing 4.3 percent between the 4th quarters 2006 and 2008, for
example.
The second contributing factor to the past 2 years of losses has
been the worldwide recession. The combination of large inventories and
recession caused a sharp drop in the market value of live hogs, from a
June 2007 peak of $152.50 to $103.30 in November 2007. Hog prices were
temporarily pulled up in 2008 because of a 49 percent increase in pork
exports as a result of a continuation of world economic growth and a
weakening U.S. dollar through the first half of 2008, with 2008 pork
exports representing 20 percent of pork production. As worldwide
economic growth slowed, and the U.S. dollar sharply appreciated in
late-2008 in response to the September 2008 financial crisis, pork
exports began declining sharply in late 2008. U.S. pork exports during
the first 3 quarters of 2009 were down 18 percent over the same period
in 2008 even before the 2009 pandemic H1N1 influenza outbreak. In
recent months, pork exports have recovered somewhat and are forecast to
decline by ten percent in 2009. The value of market hogs fell from
$172.34 in August 2008 to the $120 range from January 2009 through
July, before collapsing to $98.71 per head in August 2009.
Losses are expected to moderate from now through 2010, as demand
increases and hog supplies decline. Exports in 4th quarter 2009 are
expected up 12 percent over a year ago, to nearly 20 percent of 4th
quarter production, just below the record 25 percent of production in
the 2nd quarter of 2008. The value of the U.S. dollar has fallen 10
percent to 30 percent against several major currencies since earlier
this year, which should help exports. A return to domestic and global
economic growth should also improve profitability.
Ongoing adjustments on the supply side are expected to also
contribute to improved profitability in the U.S. hog sector in 2010.
USDA forecasts that 2009 U.S. pork production will decline 1.45 percent
from 2008 production, and 2010 production will be down an additional
2.5 percent compared to 2009 production. The September Hogs and Pigs
report shows the June 2009 breeding herd down 2.7 percent from June
2008 and the September 2009 breeding herd down 3.1 percent from
September 2008. The September 2009 breeding herd is down 5.4 percent
from its September 2007 peak. Farrowing intentions for September 2009
through February 2010 are down 3.1 percent from the previous year.
Year-over-year farrowings are expected to decline through the third
quarter 2010, with total 2010 farrowings down over four percent from
the 2007 high of 12.25 million. Moreover, live hog imports from Canada
are forecast to decline by 875,000 from 6.475 million in 2008 to 5.6
million in 2010 compared to a peak of ten million in 2007, as Canada's
hog sector also contracts.
USDA expects live hog prices to increase from the current mid-to-
high $30 per cwt range to the high $40 per cwt range, and feed costs to
average about the same in the last half of 2010 as in the last half of
2009. Unfortunately, the 4th quarter is the seasonal low for hog prices
and the 4th quarter 2009 price for live hogs is expected to average $35
per cwt, down from a 3rd quarter average $38.90. Hog prices are
expected to increase during the first 3 quarters of 2010. The 1st
quarter 2010 price is expected to average $40 per cwt; the 2nd quarter
average is an expected $45, and the 3rd quarter 2010 price is forecast
to average $49 before seasonally declining to $45 in 4th quarter 2010.
Feed prices are expected to increase seasonally, through the first and
second quarters of 2010 before declining in the third and fourth
quarters.
H1N1
USDA's National Veterinary Services Laboratories (NVSL) has
confirmed the presence of 2009 pandemic H1N1 influenza virus in a pig
sample collected at the Minnesota State Fair submitted by the
University of Minnesota. Additional samples are currently being tested.
The infection of the fair pig does not suggest infection of
commercial herds because show pigs and commercially raised pigs are in
separate segments of the swine industry that do not typically
interchange personnel or animal stock. If we do detect the 2009
pandemic H1N1 influenza virus in commercial swine, USDA will work with
our state partners, producers and their veterinarians to prevent spread
of the virus, and will continue to provide information and updates as
they become available. When it comes to flu, swine are much like
people--the vast majority recovers without any lingering health
effects. Only those animals that have fully recovered will be permitted
to enter the food supply. It is paramount to note that you cannot get
infected with the 2009 pandemic H1N1 influenza virus from eating pork
or pork products.
USDA continues to remind U.S. swine producers about the need for
good hygiene, biosecurity and other practices that will prevent the
introduction and spread of influenza viruses in their herd and
encourage them to participate in USDA's swine influenza virus
surveillance program.
Since last spring and the onset of the 2009 pandemic H1N1 influenza
outbreak in humans, USDA has consistently asked that the media stop
calling this ``novel'' pandemic virus ``swine flu.'' By continuing to
mislabel the 2009 pandemic H1N1 influenza virus that is affecting human
populations around the world, the media is causing undue and undeserved
harm to America's agriculture industry, especially to pork producers.
Each time the term is used it unfairly hurts America's hog
producers who are suffering severe economic losses during these
challenging economic times. It is simply not fair or correct to
associate the 2009 pandemic H1N1 influenza with hogs, an animal that
does not play a role in the ongoing transmission of the pandemic
strain.
While about 27 countries originally imposed restrictions on U.S.
pork since the April outbreak, 17 countries have removed their
restrictions--in large part due to the Administration's efforts to
encourage these countries to base their measures on science. We will
continue to urge countries to base any bans on scientific evidence and
in accordance with their international obligations. Three major
international health organizations--the World Organization for Animal
Health (OIE), the United Nations' Food and Agriculture Organization,
and the World Health Organization--have all issued statements that 2009
pandemic H1N1 influenza is not transmitted by eating pork.
USDA will be devoting $27.75 million provided via supplemental
appropriations to 2009 H1N1 flu preparedness and response activities.
Of this total, $25 million will go to the Animal and Plant Health
Inspection Service (APHIS) for surveillance activities, outreach to
industry, and support to help expedite licensing of any new swine
vaccines. APHIS will also receive $0.75 million to purchase human
antivirals and personal protective equipment for animal health
officials through the National Veterinary Stockpile program. The
remaining $2 million will go to the Agricultural Research Service to
develop improved tools for detecting and preventing H1N1 from being
established in U.S. swine populations.
Even before the novel H1N1 flu virus appeared last spring, we had
been working with the Centers for Disease Control and Prevention on a
voluntary surveillance program for swine influenza viruses. That
program which now includes voluntary monitoring for the novel H1N1 flu
virus, has now been launched, with the aim of identifying such viruses
quickly in the U.S. swine herd. Monitoring and studying these influenza
viruses in swine will help us learn about the virus, create better
tools to diagnose the disease and develop new and improved vaccines to
protect U.S. swine herds and humans. USDA continues to study the virus
in agricultural animals to provide the best protection for both public
and animal health. To address producer reluctance to participate in the
program, we have worked with the states to formulate guidelines for
swine infected with the novel H1N1 flu virus and ensure that infected
swine may move freely in commerce once they recover from their illness.
APHIS also recently made available master seed virus for the novel
H1N1 flu virus to interested manufacturers so they can produce approved
vaccine more rapidly. We believe that a H1N1 vaccine for swine will be
available in the coming months.
Trade
The U.S. pork industry has been facing barriers to trade because of
non-science based restrictions that are being imposed by importing
countries. The H1N1 pandemic virus is a primary example of an issue
that has resulted in non-science based barriers to trade. Secretary
Vilsack has worked to correct misconceptions about the relationship
between the current H1N1 virus and swine and to emphasize that U.S.
pork is safe.
A number of countries continue to maintain bans on U.S. live pigs,
pork and pork products, contrary to advice of three major international
health organizations, and USDA continues to press these countries to
rescind these bans. President Obama and several Administration Cabinet
officials including USDA Secretary Vilsack and U.S. Trade
Representative Ron Kirk have sent letters to those countries
maintaining bans and raised the topic in high level bilateral meetings.
The U.S. delegation to the WTO SPS Committee, led by USTR, will also
raise the issue at the upcoming committee meeting in Geneva in late
October.
As a result of our efforts, many countries that initially imposed
bans have rescinded them, but additional work remains. Russia and China
are key pork export markets and USDA has expended considerable efforts
to engage those countries on this issue. I am happy to report that
Russia has rescinded all of their bans. China continues to maintain
bans on all U.S. pork and pork products and the Administration is using
every opportunity to press China to remove these unscientific bans.
Secretary Vilsack will travel to China to participate in the Oct.
28-29 meeting of the U.S.-China Joint Commission on Commerce and Trade
(JCCT) in Hangzhou, along with U.S. Trade Representative Ron Kirk and
Commerce Secretary Gary Locke. This issue is a high priority on their
agenda. The JCCT serves as an important forum for Cabinet-level
officials from both countries to resolve trade concerns and enhance
economic opportunities and cooperation.
Another issue on which USDA has been working closely with the pork
industry is that regarding residues of the veterinary drug ractopamine.
Ractopamine is widely used in the U.S., but banned in some key markets
such as the European Union, China, and Taiwan. The U.S. has been
working diligently to gain final approval for an international standard
for trace residues of ractopamine in pork to help address this issue
with our key trading partners.
Other USDA Actions and Programs to Assist the Pork Industry
USDA Purchases of Pork
Due to the declining prices paid to producers, the Secretary
announced on September 3, 2009, USDA's intention to immediately
purchase up to $30 million in pork products prior to October 1, 2009.
Since October 2008 (i.e., FY 2009), Agricultural Marketing Service
(AMS) has purchased about 100 million lbs. of domestic pork products at
a cost of $164.6 million for distribution to Federal food and nutrition
assistance programs. This includes $28.9 million in funds authorized by
the American Recovery and Reinvestment Act of 2009 (ARRA). It is
important to note that school districts are never required to accept
any USDA Food, they cannot effectively use or do not want. In FY 2009,
schools elected to order some pork products, but the majority or the
USDA purchased pork products were provided to the Emergency Food
Assistance Program. In FY 2008, AMS purchased approximately 40.6
million pounds of domestic pork products at a cost of $65.2 million.
The Department continues to evaluate pork market conditions and, if
justified, AMS will initiate additional surplus removal purchases this
fiscal year.
Credit Assistance
The availability of credit is a critical factor for hog producers
during this stressful period. This Administration has been proactive in
efforts to assure that adequate credit is available for farmers and
ranchers. Within weeks of taking office, we aggressively sought
additional funding for FSA farm loan programs. The ARRA provided
funding to support an additional $173 million in direct operating
loans.
We recognize that some producers will be unable to meet their
financial obligations due to negative profit margins in the pork
industry. The Administration is committed to the use of the authorities
at its disposal to assist those hog producers in coping with the
financial challenges they face. On August 12, 2009, Secretary Vilsack
sent letters to all FSA farm loan borrowers advising them of assistance
available if they are experiencing financial hardship. The Secretary
also sent a letter to FSA guaranteed loan lenders on the same day,
encouraging them to consider all possible options for loan
modifications under the FSA loan guarantee program. FSA field staffs
have been given direction, and are prepared to assist hog producers and
other farmers through loan restructuring up to and including write-down
of FSA debt. Furthermore, we are continuing to consider options and
evaluate alternatives that might provide financial relief to hog
producers and other farmers under financial stress.
Export Promotion
USDA's Market Access Program (MAP) and Foreign Market Development
(Cooperator) Program (FMD) help finance promotional activities for U.S.
agricultural exports. With MAP funds, the U.S. Meat Export Federation
(USMEF) promotes pork in Southeast Asia, the Caribbean, Central and
South America, Europe, China, Japan, Korea, Mexico, Oceania, Russia,
and Taiwan. USMEF also used FMD funds in program year 2009 for
administrative costs for operating 13 foreign offices that support U.S.
meat export promotion activities, including pork.
Export markets are increasingly important to the U.S. pork
industry. Despite challenges, in the past 5 years, U.S. pork exports
have nearly doubled and the proportion of production exported jumped
from almost 11 percent to 18 percent. Much of the growth has occurred
in Japan, Canada, Mexico, China, and Russia.
Federal Crop Insurance Program
Two types of insurance for swine production are available in the
Federal crop insurance program: the Livestock Risk Protection (LRP) and
the Livestock Gross Margin (LGM).
Livestock Risk Protection (LRP) Swine insures against declining
market prices. Pork producers may select from a variety of coverage
levels and insurance periods that match the time their hogs would
normally be marketed. Producers may purchase this insurance throughout
the year from approved livestock insurance agents. Premium rates,
coverage prices, and actual ending values are posted on the RMA website
daily. So far in 2009, 29,672 head were insured by LRP on 19 policies.
Livestock Gross Margin (LGM) Swine insurance provides protection
against the loss of gross margin (market value of livestock minus feed
costs) on swine. The indemnity at the end of the 6 month insurance
period is the difference, if positive, between the gross margin
guarantee and the actual gross margin. The LGM for Swine Insurance
Policy uses futures prices to determine the expected gross margin and
the actual gross margin. The price the producer receives at the local
market is not used in these calculations. So far in 2009, 126,539 head
were insured by 62 policies.
Disaster Assistance Programs
The 2008 Farm Bill created several new disaster programs that
provide assistance through USDA's Farm Service Agency to producers. The
program that is available to pork producers who have recently suffered
a natural disaster, in addition to the current economic crisis, is the
Livestock Indemnity Plan (LIP).
LIP compensates producers for livestock death losses in excess of
normal mortality due to adverse weather that occurred on or after
January 1, 2008 and before October 1, 2011. Counties are now authorized
to make payments upon completed applications.
Conclusion
I recognize the decisions that we make in Washington affect the
livelihood of America's farmers and ranchers and we are committed to
ensuring that we work together to help meet the needs of U.S. pork
producers.
I appreciate the opportunity to testify before this Subcommittee
today, and I look forward to working with you, Mr. Chairman, Mr.
Neugebauer, and all the Members of this Subcommittee as we continue our
hard work to ensure that USDA is responsive to the needs of the pork
industry. I will be happy to answer questions you may have.
The Chairman. Thank you very much, Mr. Scuse, and again, it
is good to have you.
Let us just deal first of all with the situation facing us
with the H1N1 situation to make sure that we get the accurate
facts and information out. Isn't it a fact that the H1N1 flu
virus cannot, cannot be transmitted through food including
pork?
Mr. Scuse. That is correct, Mr. Chairman. Pork, if properly
prepared, you are not going to have a problem. It is not a
human health issue to consume pork.
The Chairman. And----
Mr. Scuse. That is the message that we do need to get out
to the public, so thank you very much for your help in getting
that message out, Mr. Chairman.
The Chairman. It is also important for us to note that the
most important thing facing us now with H1N1 is to get our flu
vaccinations and to make sure that we have that information be
accurate and out. One of the tragic figures that we have before
us is that there have been about 86 children who have died from
the H1N1 virus, and just from your information, what research,
what is the status of the research that the United States
Department of Agriculture is now doing in regards to H1N1?
Mr. Scuse. Mr. Chairman, the USDA continually does
different types of research on swine to look at the different
types of viruses that are out there.
The Chairman. Just finally on that, the situation with the
pigs at the Minnesota State Fair, it is very important to note
as Secretary Vilsack has pointed out that there was a situation
with three pigs. Is that correct? What is the disposition on
that at this point? Do you have any information on that?
Mr. Scuse. Mr. Chairman, there was only one confirmed case
at the Minnesota State Fair, and that was in a show hog. To the
best of our knowledge, it did not come from a commercial
operation. It was a show pig, and there was only one confirmed
hog at the Minnesota State Fair for H1N1.
The Chairman. Thank you very much for that.
Let us move on to another question. What is the status of
the Department of Agriculture's regulations implementing the
competition provisions in the farm bill?
Mr. Scuse. Mr. Chairman, we currently are working with the
Department of Justice that will hold hearings after the 1st of
the year to look at violations of antitrust laws and the
Stockyard and Packers Act. We realize that there has been some
concern in the industry about consolidation and we will be
holding hearings, hopefully, and will have a tremendous amount
of input from our producers as to what direction needs to be,
what path we need to go down and to give us direction.
The Chairman. I understand, Mr. Scuse, that the USDA has
announced that it along with the Department of Justice will
hold a series of workshops in early 2010 to examine competition
issues in the livestock industry. Could you share with the
Committee further details about these workshops and how they
will factor into decision making at the Department?
Mr. Scuse. Mr. Chairman, we are going to hold a series
workshops, again throughout the United States, to get input
from industry as well as our producers on the effect that
corporate consolidation and other issues affecting production
agriculture--not just in the animal sector but in the feed
grain sector, the dairy sector--as well as the effect that it
has on our consumers. There has not--I don't believe we have
established at this time where those meetings are going to be
held, but they will be held so that, hopefully, we will get
input from the various regions of the United States on all of
those issues.
The Chairman. Now let me ask about the credit situation
that still remains a very important issue to producers. What,
aside from what you mentioned in your testimony, is the
Department doing to ensure that credit remains available to
producers and is FSA considering raising loan limits to help
lenders better help producers?
Mr. Scuse. Well, Mr. Chairman, in the 2008 Farm Bill, the
loan limits were raised for both our guaranteed as well as our
direct operating loans. USDA has sent out notices to all of our
borrowers, as well as those lending institutions that we
partner with, asking them to look at ways that we can help our
producers through refinancing or other avenues to make sure
that we can keep them in business. Our loan portfolio, we
increased our lending this past year, 2008, by almost $1
billion. So we have been working very hard with Congress to
make sure that we do have the funding available to help those
producers that are in need.
The Chairman. Thank you, Mr. Scuse.
Mr. Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman.
Secretary, welcome. On October 2, over 60 Members of the
House wrote to the Secretary of Agriculture to request $100
million in pork purchases, to secure appropriated funds for
surveillance, diagnostic and vaccine development and to
encourage efforts to address these export challenges that we
have been talking about, particularly with China. Could you
take a moment to outline the Secretary's progress in these
areas?
Mr. Scuse. Well, we have $25 million set aside for the
surveillance program. AMS currently is looking at the request
for the pork purchase. They are doing the analysis of that
request, which will take some time. And as far as our trade
goes, Secretary Vilsack and Under Secretary Miller will be in
China next week and our pork trade with the Chinese is a major
topic for both of them.
Mr. Goodlatte. Well, with regard to that, in 2006 we had
$55 million in exports of pork products to China; in 2007, $147
million; in 2008, $268 million, and a very successful and
rapidly growing market. Recently the Administration, President
Obama placed a 35 percent tariff on tires imported from China.
What participation or consultation did the Department of
Agriculture have before that decision was made to engage in
that measure with regard to China?
Mr. Scuse. On the----
Mr. Goodlatte. Which obviously many in this industry are
concerned about the dampening impact on that growing market.
Mr. Scuse. Specifically the question is the tire tariff?
Mr. Goodlatte. Yes.
Mr. Scuse. I can't answer that question, Congressman. I
don't know at my level what discussions we had before that was
done, but I will say that if you look at the tremendous
increase in our exports to China for the year of 2008, there
were two factors that contributed to that tremendous growth.
One was the Summer Olympics and the demand for pork products to
feed all the Olympians in Beijing, and the second factor was
that the Chinese did have some health issues in their own pork
industry at that particular period of time. So those two
factors contributed to the steep increase in our exports to the
Chinese. If you recall----
Mr. Goodlatte. We want to try to sustain that growth, do we
not?
Mr. Scuse. No doubt about it, but if you will remember when
H1N1 was first found in the United States, the Chinese
immediately, unfortunately, banned all pork products from the
United States. That is what the Secretary and the Under
Secretary will be working very hard in the next 10 days to see
if we can resolve that issue.
Mr. Goodlatte. Well, I wish you would consult with the
Secretary and his staff and determine whether or not they were
consulted before a significant trade position was taken by the
Administration that could have serious ramifications for
agricultural trade, number one, and number two, if they have
not been consulted, what measures they have taken to speak with
the USTR and others and ask that they be consulted in the
future when issues like this arise that could have
ramifications for significant sectors of our agricultural
economy.
Mr. Scuse. If I may, I would like to say that USTR, State
and the Department of Agriculture have been working very, very
closely together on trade issues as they pertain to agriculture
to see what we can do to----
Mr. Goodlatte. I want to get one more question in. Let me
shift over to this, because this is very important. Recently
your Administration testified before the House Rules Committee
in favor of H.R. 1549, which would severely restrict the use of
antibiotics in food animal production. Did the Department of
Agriculture have any input into that position?
Mr. Scuse. I can't answer that question. I will get you a
response, though, sir.
Mr. Goodlatte. Has the Department done any economic
analysis of the adverse economic impact on pork producers of
this legislation?
Mr. Scuse. Again, I can't answer that question, but I will
supply you with the answer.
Mr. Goodlatte. All right. Well, I thank you very much,
because that is of grave concern to many people on this
Committee and many people sitting behind you.
Mr. Scuse. No doubt.
Mr. Goodlatte. Thank you very much, Mr. Chairman.
The Chairman. Thank you.
The gentleman from Wisconsin, Mr. Kagen.
Mr. Kagen. Well, thank you, Mr. Chairman.
Thank you very much for being here, Mr. Scuse. I really
appreciate your efforts. I wish that all of your efforts would
bring about an increase in the price of pork for our producers
more immediately, but you can't control worldwide markets. But
there are some things that you can have an influence on. With
regard to our trade policies with China, is there any way you
can bring about a more rapid response from the Chinese people
understanding the facts are that H1N1 cannot be transmitted by
properly prepared meat from pigs, understanding that when we
ship our pork overseas after it has been properly prepared, it
does not transmit the H1N1 virus?
Mr. Scuse. Congressman, that is the one thing that we have
tried to get across to all of our trading partners. We would
like for them to follow the OIE guidelines from the World
Animal Health Organization. We have been trying to convey that
message to the Chinese and, hopefully, the Secretary and Under
Secretary in their meetings with the Chinese next week will be
successful, but again, that is a priority for them. We want to
resolve this issue and open up our markets to China as quickly
as possible, and we recognize the impact, the immediate impact
that that opening would have on our pork industry and our pork
producers. So it is a priority and we are urging them to follow
the OIE guidelines which would allow our products into China.
Mr. Kagen. Especially at a time when our dollar is at a
current value that it really would favor the export of our pork
and everything we manufacture and produce in this country.
I would like to ask you about the Livestock Risk Protection
Program and also the Livestock Gross Margin Program. In
particular, as a business owner myself, did a great number of
producers take advantage of those programs?
Mr. Scuse. No, they did not, and I gave the numbers in my
opening statement. Very few producers, unfortunately, took
advantage of the programs. But when you come out with new
programs, it does take a while for them to become accepted,
understood, and as well there probably are issues with the
programs where there are changes that need to be made, as we go
through this we have to take a look at those programs. Our
Dairy Margin Insurance Program is another program, sir, that
very few people took advantage of it, had they taken advantage
of it they wouldn't be suffering the losses, but as you are
well aware, hindsight is 20/20. So we are going to work to do a
better job with outreach and tweak those programs so that we
can get more producers involved in risk management.
Mr. Kagen. I would encourage you to do that. I think that
producers should take advantage of every possibility to not
just hedge their commodity, but also to make certain that they
have proper insurance, not just workmen's compensation but this
risk insurance could be very valuable to them, especially right
now.
I would also like to inquire about what role, if any, any
possible speculation in the commodities market may have played
with regard to the suppression of the price. Do you feel that
that played any role at all?
Mr. Scuse. At this point in time I doubt it. When you look
at where the markets have been now for almost 2 years, there
would be some that would argue yes, that it did. But, if you go
back and look at the markets 2 years ago and what has happened
in the last 2 years, I would say that had little, if any,
impact.
Mr. Kagen. And my final comment has to do with your immune
system. I am an immunologist, and I will share with you the
fact that if you are preparing pork that has the H1N1 virus
protein in it and it is going to be denatured, it won't cause
any infection in you, but if there is any protein left, it is
going to stimulate your immune system. I am not suggesting that
this is a way of getting immunized for H1N1 or to eat more
pork, but you can certainly understand that by eating something
you are stimulating your immune system at the same time. So, it
would be a good thing for people to consider that feeding their
family and themselves the pork product that we have here in
this country could be good for your immune system, good for
your health, and your economy as well.
So thank you for being here. I appreciate the opportunity
to inquire about the programs.
Mr. Scuse. Thank you, Congressman.
The Chairman. Thank you, Mr. Kagen.
The gentleman from Iowa, Mr. King.
Mr. King. Thank you, Mr. Chairman. I appreciate Dr. Kagen's
unique approach to this and want to let him know that we did
our best. We roasted a 300 pounder last Saturday night.
Mr. Kagen. Congratulations.
Mr. King. Thanks for opening that subject up, and I would
first turn to the issue of the letter signed by 61 or 62, many
Members of the Agriculture Committee, Members of Congress, that
asks the Department to purchase meat from sows as a way to take
some of this pork off the market and, potentially, reduce the
breeding stock. We need to do that so we can see more demand in
this market and see some recovery after this perfect storm that
we have seen in the pork industry. I thank you for your
attention to that, and I encourage that there be a lot more of
it. The issue, though, of meat from sows seems to be a little
bit more difficult than we had anticipated. I am informed that
in the school lunch program there is a restriction that exists
that only pressed sausage patties from sow meat is approved,
not other types of sow meat. Could you speak to that and let us
know why that might be, if it is true?
Mr. Scuse. I can't speak to that specifically but we will
get you a response to that. I do know that on our pork
purchases there are a tremendous variety of different products,
not just canned pork products but all the different pork
products are actually purchased through our program, the
Section 32 program. So I can't speak to that specifically on
what the requirement is for our school lunch program, but we
will get you a response for that.
Mr. King. I appreciate you taking a look at that, and I
also appreciate a broad and aggressive approach to this. I
think it sends the right message to the pork industry when they
see that kind of a response by the USDA, and we have a new
budget here now to take a look at as well.
I also understand the USDA is now soliciting bids from sow
processors and cookers but bids haven't been very great in
number and that the USDA has imposed TARP-like restrictions on
firms that are bidding. They want them to disclose the salaries
of their top five employees. And it is presumed that the
payroll czar, the executive pay czar, is taking a look at
these. Can you confirm that that is the case and could you also
advise this Committee as to whether you are compelled by law to
evaluate the salaries of companies that are bidding to the
USDA?
Mr. Scuse. Congressman, I have no knowledge of that, and if
that is taking place, it is something that I don't know about,
but again, we can get you a response to that. I have no
knowledge that that is taking place.
Mr. King. Thanks, and I will look forward to that response
and I would just tell you, in 28 years in business and bidding
on Federal contracts, if the Federal Government asked me what I
was paying myself as a condition to bid the project, I would
take a look at that and maybe reduce my spectrum of potential
customers by one.
So then I would turn our attention to--and the subject has
been brought up of trade with China. I very much encourage, as
emphatically as possible, an aggressive effort to open up that
trade with China but also Korea, Colombia, and Panama. I have
watched over the transition from the Clinton Administration
through the Bush Administration to the Obama Administration, I
give President Clinton significant credit for supporting trade
agreements and holding Democratics together to get enough votes
to actually pass them. Through the Bush Administration, I
watched Democratics line up and incrementally start walking
away from free trade, and now we have a President who, I will
say for lack of a better term, is less than aggressive on free
trade philosophy. Now, I am seeing that no free trade
agreements appear to be moving anywhere. There may be slow
walking going on but I don't think a commitment. Can you tell
me what the position is of the Administration with regard to
Korea, Colombia and Panama and whether there is any optimism
there that we can open up that trade and help our pork industry
as well?
Mr. Scuse. Well, you understand that those negotiations and
discussions are ongoing and continuing. The President has made
it clear that we do support free trade, but we also want to
make sure that it is not just free trade but fair trade. The
Administration is going to take a very close look at these
trade agreements as they come to pass to make sure that it is
not only free trade but it is in fact fair trade.
Mr. King. And as my clock ticks down, I would ask a couple
questions all in one, and that would be: I would like to ask
you to point out which country is the most likely to be defined
as a free trade country that could have a bilateral trade
agreement passed, but I would also ask this question about
Canadian pigs. There are about six million pigs that are
farrowed in Canada that come into the United States. About four
million of them come to Iowa. These records are now about a
year old because the dynamics of the market have changed. Have
you been tracking the categories under country-of-origin
labeling? Can you let this Committee know what is happening
with those Canadian pigs now, and how that is affecting the
market and the slaughter facilities that are available either
in the United States or Canada for finished hogs of Canadian
origin?
Mr. Scuse. Well, there has been a sharp decline in the
amount of pork that is coming across the border into the United
States from Canada. In fact, this past year there was about a
30 percent decline in those numbers. That is the only
information that I have available at this time, Congressman.
Mr. King. On that country that is most likely to see a free
trade agreement passed with the United States?
Mr. Scuse. I will pass on that.
Mr. King. Mr. Chairman, I have abused the time limit
although I appreciate the witness and the opportunity to
question. I yield back.
Mr. Boswell [presiding.] Thank you. Since I was the next in
line over here before I took over the chair, I will take my
moment here.
First of all, Mr. Secretary, thank you for taking on the
responsibility of farm services. It is a big item for
producers, everybody in America, really, and I want to
compliment you or pass on to you really the unsolicited remarks
I am getting from farmers and different people across my
district for the good job that John Whittaker is doing. So I
thank him for his hard work out there being state director, and
we appreciate it.
Mr. Scuse. Thank you.
Mr. Boswell. I am going to bounce around a little bit
because you talk amongst your colleagues down there at the
Department and the Secretary and so on, but some of the
problems going on with pork producers are worrying us all. As I
look at the loan rate, and we all know how capital intensive it
is to put a crop in these days, and most, at least, if not all
but at least most of the pork producers are raising their own
grain, and the loan rate is basically $1.80. It costs them $4+
to produce a bushel of corn. It makes it pretty hard for them
to go ahead and plan ahead and use that as a tool to get their
next year acreage lined up. I would like to have that
discussion with you or somebody down there sometime soon just
as a sideline. You can comment if you want. But this is a
serious problem out there for producers, and having been one,
it is very important. So I would like for you just take note of
that and hope we can talk some more.
Mr. Scuse. The Under Secretary and I would welcome the
opportunity, and as a grain farmer from Delaware just 2 hours
east of here growing corn, soybeans and wheat, I would
appreciate that discussion.
Mr. Boswell. Okay. So we will ask that to take place.
Another thing is, there is a lot of discussion going on and we
will continue with the next panel and you may not be available
to stay, but I would like to make this point. I was going to
ask the Chairman to enter this into the record, but since I am
now the chair it will go into the record. But it has to do with
a report. As you know, Congressman King and others, we made a
little trip over to Denmark not too long ago and we didn't
learn a terrible lot in the sense of what to do, or what not to
do on this ban. We came back with a lot of questions and so on,
but since then, we have received this little report here. It is
short. I am going to read it and then I am going to put it in
the record, and it has to do--the title is Suspicious Rise in
Danish Use of Pig Antibiotics. ``Use of antibiotics in Danish
pig production increased 19 percent during 2001-2008, the
report has shown, despite the fact that Danish law forbids the
use of antibiotics for routine treatment of livestock. The ban
on routine administration of antibiotics is intended to protect
against the risk of antibiotic resistance in bacteria that can
affect both animals and humans which is potentially life
threatening. However, the recent Danmap (Danish integrated
antimicrobial resistance monitoring and research program)
report for 2008 showed that antibiotic use in pig production
had gone up by 19 percent in 2001-2008, measured in daily pig
doses per kilogram of pork. The findings were reported in the
bimonthly Maskinbladet under the headline `indications of
routine treatment with antibiotics.' According to the article,
the increase relates primarily to the use of tetracyclines,
which rose by 118 percent and 60 percent respectively in weaned
and finishing pigs for the period of 2003 to 2008.'' I want to
enter this into the record, because that discussion is going
on, and one thing I think that Congressman King and I would
agree on, that when we visit with the farmers, they would like
for this ban to take place. We kind of caught a moment, and
well, it would make them more competitive. So there is that
concern there.
[The document referred to is located on p. 63.]
Mr. Boswell. Now, setting that aside, we can come back to
that. I do have a question in the short time I have left. Is
the use of Section 32 for pork purchase subject to OMB's
administrative PACO?
Mr. Scuse. No, Congressman, that fund is a fund set aside
for the Secretary to use. There is approximately $250 million
that the Secretary can use for bonus purchases as requested in
the October 2nd letter.
Mr. Boswell. Well, thank you very much. I am willing to
yield back and go ahead and recognize Mr. Roe from Tennessee.
Mr. Roe. Thank you, Mr. Chairman.
Just a brief statement ahead of time. One, from what we
know, H1N1 can't be transmitted through pork, and I think
perception ends up being reality. I go back to 1976 when the
last swine flu epidemic came through, and one of the scary
parts for the public at that point was that the swine flu
vaccine actually caused more problems than the swine flu did at
that point. It caused a problem known as Guillain-Barre
syndrome, which was a paralysis, and that still hangs around a
little bit. But just to go ahead and dovetail with what Dr.
Kagen said is that for people out there that don't understand
immunology and immunizations, there is a thing called the herd
immunity where if enough people get immunized, the virus has
nowhere to spread, and so that is one of the things from a
perception and reality standpoint. I would take--haven't had an
opportunity yet but I am taking the H1N1 vaccine. I am a
physician and I am going to take the vaccine and encourage my
patients to do the same. Apparently when it does hit, it is a
very devastating illness. It causes a problem called ARDS,
adult respiratory distress syndrome, which is very difficult to
treat. But the bottom line is, it is not the pork producers
that are the problem. It is human-to-human transmission and we
have to cover our mouths and wash our hands and do all the
things we know to do. So I did want to get that out there and
let people know from a doctor's standpoint that they need to be
doing these things. So I would encourage folks in this room or
people watching to go ahead and do that and do the things we
already know we should do.
Just to dovetail on what the Chairman was speaking of just
a moment ago, I have done some reading on the antibiotic use in
pork and don't know that that decision has been made. I know
that the American Veterinary Association has asked for, at
least from what I've read, a year to look at this issue because
of what the EU is doing now, whether we are going to ban it in
pork or not. Does the USDA have any position on that at all?
Mr. Scuse. This is an issue that needs to be discussed
within the industry as well as within FDA, USDA, but this is a
decision that is going to take some time. There is some
research that needs to be done with this. But it is not a
decision that can just be made overnight. There are a lot of
factors that the industry has to take into consideration. So it
is an issue that is going to have to be looked at by all
parties--FDA, USDA, the industry on what direction we want to
go in.
Mr. Roe. Well, it makes sense to me to let the experts--
they asked for a year to look at this and study this issue more
and get some data. That makes sense to me to wait for that time
and get the information so you are dealing with facts again,
not perception.
Mr. Scuse. Again, let us make decisions on sound science.
Mr. Roe. Yes, absolutely. Another question I have for you,
Secretary Vilsack was here not too long ago when we were
discussing the cap-and-trade legislation, and we were all
concerned about the increasing and ever-rising costs of energy
as oil goes up to near $80 a barrel and how it affects--I am
from a rural area in Tennessee and agriculture is really
struggling there. There are dairy farmers, we have had numerous
hearings on that, and our pork producers. Have you all studied
how the effect of increased costs of energy, if they have any
more costs--I can tell you, our farmers where we are, are going
under, and we have had to deal with the drought, and we had to
deal with a year ago $4.50 diesel fuel. We have done the
experiment where carbon-based energy went up in price and it
was devastating to our farmers. They haven't gotten over it
yet. Have you all studied the impact of the current legislation
on that?
Mr. Scuse. I think that--and I agree with you. Our costs of
production have increased, and fortunately for this year, much
of our cost has come down from the highs of a year ago. That is
one of the reasons why we need to look at the alternative
energies, the biofuels, become more self-sufficient on energy
and to look at what we can do to keep our energy costs low.
Now----
Mr. Roe. That is not what I am asking.
Mr. Scuse. I know.
Mr. Roe. I am asking--I agree with everything you just
said.
Mr. Scuse. You are asking about the issue on cap-and-trade.
As far as cap-and-trade, I think that if you had the Secretary
here testifying--last month you probably heard the Secretary
say that we believe that agriculture will actually benefit from
cap-and-trade legislation, especially the livestock sector. We
believe that there will be opportunities for them to profit
from this, just not be a financial liability but also be able
to make additional revenues from their farming operations
through the cap-and-trade.
Mr. Roe. I may have a different opinion, but I appreciate
what the FSA is doing in our area too, Mr. Chairman, also.
Thank you.
Mr. Boswell. Well, thank you, Dr. Roe, and on that note,
some of things you were talking about I appreciate the
discussion that you have had. I would hope that, and I think it
will happen, that we are going to base our study on this
situation, antibiotics, on science. I just call your attention
to an Iowa State University study that estimated that a ban in
the United States similar to Denmark's would raise the cost of
production by $6 a hog, and $1 billion to industry. We have to
apply science to this, and there are a number of variables that
we don't have, animal ID and it just goes on and on, and also
the scope of it, the size of it. So we have to turn to science.
I think that not only the Department feels that way but pork
producers feel that way too. So we have a lot of science
available to us across this country, and if we commit to using
that, why, in the end we will probably do the right thing.
That completes--everybody has had an opportunity to talk to
the Secretary. Does anybody else have a question? If not, we
are going to bring this part to a close. Thank you for your
time today and we look forward to Chandler getting a hold of
you so we can have further discussions on some of these items,
and I appreciate your work.
Mr. Scuse. And I appreciate the opportunity to be here
today. Thank you for the questions, very good questions, and I
look forward to seeing you on the other issue.
Mr. Boswell. We will be talking to you soon. With that, we
will excuse you at this time with appreciation, and invite the
second panel to join us.
We would like to welcome our second panel witnesses to the
table. I will just recognize each quickly before we start our
discussion. Mr. Donald Butler, President of the National Pork
Producers Council, Warsaw, North Carolina, thank you very much
for being with us. Mr. Mark Greenwood, Vice President of Agri
Business Capital, AgStar Financial Services, Mankato,
Minnesota. Mr. Brian Buhr, Ph.D., Professor, Head and E. Fred
Koller Chair in Applied Economics, University of Minnesota,
nice to have you with us. Mr. Rod Brenneman, President and CEO
of Seaboard Foods, Shawnee Mission Kansas, and from my state, a
person I go to from time to time, Mr. Dave Moody, Public Policy
Chairman and Past President, Iowa Pork Producers Association,
Nevada, Iowa. With that, we recognized everybody and we will at
this time start off with Mr. Butler. Please share with us what
you want to share with us.
STATEMENT OF DONALD P. BUTLER, PRESIDENT, NATIONAL PORK
PRODUCERS COUNCIL; DIRECTOR OF GOVERNMENT RELATIONS AND PUBLIC
AFFAIRS, MURPHY-BROWN LLC, WARSAW, NC
Mr. Butler. Good morning, Mr. Chairman. Thank you. Before I
get into my remarks, I want to clarify something that was
alluded to earlier, and that is that H1N1 is a respiratory
disease and that both USDA and CDC have confirmed that pork is
safe to eat and it cannot be transmitted through pork products.
I just want to make that clear.
I am a pork producer from North Carolina, and I am
President of the National Pork Producers Council, and I
appreciate the opportunity to come before you today and share
and update on behalf of our industry.
First, let me say that the U.S. pork industry represents a
very significant part of the U.S. economy. We contribute about
$35 billion annually to the gross national product and support
550,000 jobs, mostly in rural areas across the country. We all
know that we are in crisis today and we hope to find ways to
stem the tide of foreclosures and bankruptcies for us to
continue to contribute protein, the safest, most nutritious
meat protein. We need to find a way out of this 2 year-old
crisis. Producers have been averaging $23 per hog for every pig
sent to market since September of 2007. These impacts are being
felt in my home state as well as yours, states like Illinois,
Indiana, Iowa, Kansas, Minnesota, Ohio, Oklahoma, Pennsylvania,
Texas, Wisconsin and others, and there are many factors that
contribute to the condition that we are in including the
unwarranted bans on U.S. pork products by some of our trading
partners, citing fears of H1N1 influenza. But the biggest
reason, quite frankly, is higher input costs, higher feed cost.
I want to make it clear that this crisis is not of our own
making. It is not the result of over-expansion or
overconfidence, and it is worse and fundamentally different
than the downturn that we saw, the crisis we saw in 1998 and
1999.
So what can be done about it? First, we encourage the USDA
to make additional purchases of pork products for various
Federal food assistance programs. The Department, as you have
heard, has recently purchased $55 million in pork products and
we are very grateful for that assistance. We urge the Congress
to reexamine the spending cap on USDA's Section 32 program,
given the economic conditions of our industry. As I said, they
are materially different today than they were during the farm
bill debate when the cap on Section 32 funds was implemented.
Also let me say that we are grateful to Mr. Walz, Mr. King and
the other 61 Members of the House for sending a letter to
Secretary Vilsack urging further support for our industry. We
ask that Congress and the Obama Administration pressure U.S.
trading partners, particularly China and Russia, to eliminate
their barriers to U.S. pork products. We also strongly urge
Congress to approve as soon as possible the pending free trade
agreements with Colombia, Panama and South Korea. These trade
agreements would be a great help to our producers. The U.S.-
Korea free trade agreement alone would add more than $10 per
head to producers for each hog marketed.
As the number one user of corn, we request that a study be
conducted of the economic impact on the livestock industry of
any expansion of corn ethanol production and usage. As you
know, there have been calls for raising the cap on the blending
rate for ethanol into gasoline to 15 percent from its current
ten percent. All the facts should be on the table before any
policy decisions are made on this important question.
Additionally, NPPC has policy in place to support allowing
the ethanol import tariff and Federal blenders tax credit to
expire. These incentives promote ethanol production regardless
of market demand which in turn creates additional competition
for corn and hurts pork producers. NPPC supports as a safety
net a WTO-compliant countercyclical payment for ethanol
producers.
We urge Congress to oppose any measures that would place
undue burdens and any higher cost on U.S. pork producers such
as restrictions on access to capital and contract arrangements
that can sustain hog operations during this crisis, or any
prohibitions on production practices such as a ban on certain
animal products. On this point, we thank the Chairman, Chairman
Peterson, Chairman Boswell, Ranking Member Lucas and other
Members of the Committee for your interest on this subject.
NPPC is grateful for all the Members of the House Agriculture
Committee, USDA and other members of the Administration for all
the efforts you have already made to help us weather this
economic storm.
As it did a decade ago when pork prices plunged to record
lows, the U.S. industry will survive this crisis though no
doubt we will be different, we will be smaller. Market forces
will have their way. We are asking Congress and our government
for some reasoned common sense help to help us get through what
we are experiencing right now.
Mr. Chairman, thank you for the opportunity to be here
today.
[The prepared statement of Mr. Butler follows:]
Prepared Statement of Donald P. Butler, President, National Pork
Producers Council; Director of Government Relations and Public Affairs,
Murphy-Brown LLC, Warsaw, NC
Introduction
The National Pork Producers Council (NPPC) is an association of 43
state pork producer organizations and serves as the voice in
Washington, D.C., of America's 67,000 pork producers.
The U.S. pork industry represents a significant value-added
activity in the agriculture economy and the overall U.S. economy. In
2008, it harvested more than 116 million hogs, and those animals
provided total gross receipts of $16 billion. Overall, an estimated $21
billion of personal income from sales of more than $97 billion and
$34.5 billion of gross national product are supported by the U.S. hog
industry. Iowa State University economists Dan Otto and John Lawrence
estimate that the U.S. pork industry is directly responsible for the
creation of nearly 35,000 full-time equivalent jobs and helps generate
an additional 515,000 indirect, mostly rural, jobs.
The U.S. pork industry today provides about 20 billion pounds of
safe, wholesome and nutritious meat protein to consumers worldwide.
U.S. Pork Industry Economic Crisis
The U.S. pork industry is in the midst of the most severe economic
crisis in its history. Over the past 24 months, U.S. pork producers
have lost an average of nearly $23 on each hog marketed. Since
September 2007, the industry has lost more than $5.3 billion or more
than 66 percent of its equity as of Oct. 14, 2009.
And things look bleak, going forward. October 13 closing Chicago
Mercantile Exchange lean hogs, corn and soybean meal futures prices
suggest that producer losses will exceed $30 a head for pigs sold for
the remainder of this year and will be nearly $40 a head in November.
Based on lower lean hogs futures prices, cash hog prices will be
below the cost of production in all but 4 months through the end of
2010, according to economist Steve Meyer, president of Paragon
Economics in Adel, Iowa.
Origins of the Crisis
Several factors have contributed to the U.S. pork industry's profit
crisis, but primary among them is a surge in production costs due to
higher feed prices. While corn and soybean meal prices have fallen from
their record levels of 2008, they remain significantly higher than they
were before 2007. (Figure 1 shows that corn prices have moved from a
historical level of near $2 per bushel to a new ``normal'' range of $3
to $4.20 per bushel.)
These higher prices for feed, which accounts for 60 percent of the
cost of raising a hog, are mostly the result of a significant increase
in the production of corn-based ethanol, which has driven up corn
demand and, thus, prices. (The price of soybean meal also has risen
dramatically as the price of corn has increased.) The use of corn for
ethanol production has more than tripled since 2004, and ethanol
production is the only usage of corn that has grown significantly
during that time period.
NPPC has policy approved by delegates at its recent annual
meetings--the National Pork Industry Forum--that calls for not renewing
when they expire at the end of 2010 the tariff on imported ethanol and
the Federal tax credit that the ethanol industry receives for blending
ethanol into gasoline.
U.S. biofuels policy, which provides tax incentives for the use of
corn-based ethanol and mandates minimum usage levels for ethanol, has
created a strong link between corn and crude oil prices (see Figure 2).
That link was particularly strong in 2008 when corn rose almost in
lock-step with record-high oil prices. Financial difficulties for
ethanol producers and the prospects of an exceptionally large crop
allowed corn prices to fall relative to oil this summer, but the recent
rise in oil prices to their highest level in nearly a year has been
accompanied by another jump up in corn prices--even as a record-large
corn crop is being harvested. Oil prices will continue to be a major
driver of corn prices, with ethanol plants increasing production
because of higher ethanol prices--just under the price of oil--and with
U.S. policy encouraging the use of corn-based ethanol.
Higher feed prices have had a huge negative impact on animal
protein sectors, all of which are shrinking this year. For the U.S.
pork industry, the result is break-even hog production costs that are
now in the low to mid-$60s on a carcass basis--roughly 20 to 30 percent
higher than during the period from 1999-2007 (see Figure 3). While
these cost levels now are much lower than the $80 per carcass
hundredweight cost of the summer of 2008, the 28 percent increase in
costs from now through 2010 over the 1999-2006 period must at some
point be covered by the price of market hogs to return the pork
industry to profitability.
It is important to note that this year's hog prices, which have
been disappointing since the 2009 novel H1N1 influenza outbreak began
in late April, had they been what they averaged between 1999 and 2006,
would not have been low enough to cause producers to lose money until
September. The biggest reason pork producers have lost money in 22 of
the past 24 months is that production costs have been higher. And
futures markets indicate they will remain so through the end of 2010.
The current economic crisis is not the result of over-expansion
driven by selfishness or overconfidence, and it is fundamentally
different from the economic catastrophe of 1998-1999. That situation
was caused by rapid expansion of the U.S. breeding herd in the mid-
1990s and a rationalization of excess U.S. packing capacity in the
1980s and early 1990s. The closure of a major packer in July 1998 that
fall caused a processing capacity restriction that, when combined with
significantly higher hog numbers, drove prices to record-low levels.
Once the industry emerged from that crisis, U.S. pork producers
from February 2004 through September 2007 increased the size of their
breeding herd by only 3.1 percent while enjoying the longest period of
profits on record. That rate of breeding herd increase (0.8 percent per
year) did not even keep pace with the growth of the U.S. population.
Further, U.S. producers began reducing the size of the breeding herd in
June 2008--after less than 1 year of losses--in response to the
prospects of long-term higher production costs.
The ultimate irony of the current crisis is that even producers'
efforts to take better care of their animals and increase their
operating efficiencies have worked against them. Technology, disease
control and better diagnostics have improved the overall health of the
U.S. hog herd and have increased productivity. The best example of this
is the impact of circovirus vaccines on productivity.
Porcine circovirus contributed to the poor performance and/or death
of millions of pigs during the decade prior to 2007. The disease took a
terrible toll on animal well-being and the morale of owners and workers
as well as the financial performance of hog production enterprises.
Animal health companies responded to this challenge, introducing
effective circovirus vaccines in late 2006. By mid-2007 these vaccines
were available to all producers, and their adoption improved pig
survival rates so dramatically that hog slaughter in the fourth quarter
of 2007 was nearly eight percent higher than 1 year earlier--from a sow
herd only two percent bigger.
Since late 2008, productivity increases have slowed (because year-
over-year changes involved comparisons to a vaccinated, healthier
population) but have remained significant. Preventing the immune-
suppressing impacts of porcine circovirus has enabled pigs to more
effectively fight other diseases, improving growth rates and, most
importantly, driving average litter sizes higher by two percent or more
for each quarter of the past 2 years. The productivity increases have
resulted in enough market-weight pigs to nearly offset the 4.8 percent
decrease in the U.S. sow herd since December 2007.
Certainly, the global economic slowdown that began in the fall of
2007 and the resulting ``recession,'' which dramatically increased the
value of the dollar and reduced foreign demand for U.S. products, also
have had a negative effect on the U.S. pork industry, as well as on
many other sectors of the economy.
More recent factors contributing to the industry's economic crisis
have been higher-than-expected U.S. hog slaughter numbers, especially
since late July, and, most importantly, higher slaughter weights, which
have been as much as 6 pounds per head higher this past summer due to
unusually cool temperatures that caused pigs to eat more and grow
faster.
2009 Novel H1N1 Influenza
While higher production costs have been the main culprit for the
U.S. pork industry's losses over the past 2 years, they have been only
part of the problem since late spring. Hog prices have been
disappointing relative to the levels expected back in late April just
prior to reports on the 2009 novel H1N1 flu, which the media insisted
on calling ``swine'' flu. In fact, actual prices since then have
resulted in a $1.3 billion reduction in producer revenues--and an
average loss of nearly $23 per market hog--from the level they would
have been had prices been what were suggested by the Chicago Mercantile
Exchange lean hogs futures prices in late April.
The 2009 novel H1N1 influenza caused a short-term reduction in
domestic pork demand that hurt prices in May. While this demand decline
was short-lived, according to research conducted by the National Pork
Board, the negative publicity generated by ``swine'' flu stories has
had a lasting effect on some consumers.
Additionally, 2009 novel H1N1 caused some significant disruptions
in exports, most notably to Mexico--the No. three market for U.S.
pork--in May and June due to lower pork demand as Mexican consumers
shied away from pork from any source. Exports also fell when some U.S.
trading partners implemented H1N1-related bans on pork imports from
North America.
At the peak on May 5, official and unofficial bans on pork from the
United States were in place in 27 countries, including China--the No.
two export market for U.S. pork in 2008--and Russia--the No. five
market. (Currently, seven countries, including China, maintain an H1N1-
related ban on U.S. pork imports.) The prohibitions were put in place
despite statements issued by the World Health Organization, the World
Animal Health Organization and the World Trade Organization that import
bans on pork due to 2009 novel H1N1 would be unjustified in light of
the fact there was no evidence to indicate the virus could be
transmitted by handling or consuming pork.
NPPC is appreciative of the efforts of the U.S. Department of
Agriculture (USDA), the Office of the U.S. Trade Representative (USTR)
and other agencies to keep export markets open to U.S. pork. Many of
the countries that had H1N1-related bans rescinded their prohibitions
within a few weeks of instituting them.
The industry again will be counting on USDA, USTR and other
agencies to reassure U.S. trading partners that pork is safe to eat and
handle and that the 2009 novel H1N1 flu is not transmitted through pork
now that some pigs in Minnesota have tested positive for the 2009 novel
H1N1 virus.
The unwarranted bans on U.S. pork imports have left two to three
percent more pork on the U.S. market, and the extra supply has driven
domestic prices downward.
Export Issues
Until the H1N1-related bans were imposed, exports for some time had
been a bright spot for the U.S. pork industry. Indeed, 2008 was the
17th consecutive record year of U.S. pork exports and, in fact, exports
saved the U.S. pork industry's bacon (pardon the pun) last year, when
producers exported more than 2 million metric tons of pork--about 20
percent of total U.S. production--worth nearly $5 billion. That added
about $48 to the value of each hog marketed and significantly tempered
producer losses in 2008.
That said, exports of U.S. pork could have been even higher except
for some nagging issues--in addition to the H1N1-related bans--with
several U.S. trading partners.
China, which accounts for 47 percent of world pork consumption,
serves as a good example. The Asian nation has a ban on imports of U.S.
pork produced with ractopamine hydrochloride, a protein synthesis
compound that significantly improves efficiency in pork production. In
recent years, China has ``delisted'' or placed under review numerous
U.S. pork plants because of the detection in U.S. pork imports of
ractopamine hydrochloride. But ractopamine was approved for use in U.S.
pork production after an extensive review by the U.S. Food and Drug
Administration and is approved for use in 25 countries around the
world, including several countries in Asia. As a further indication of
the safety of the product, the U.N. Codex Alimentarius is in the final
stages of an eight-step process for establishing a recommended maximum
residue level (MRL) for ractopamine in pork production.
China began delisting U.S. pork plants because of the detection of
ractopamine in 2006. In addition to the loss of exports from those U.S.
plants that have been delisted due to ractopamine, China's arbitrary
delisting policies throw a great deal of uncertainty into trade for
plants that remain eligible to export to China.
China's delisting of U.S. pork plants due to ractopamine use is
without health or scientific justification. In fact, its ractopamine
policy reflects the Chinese Government's interest in strictly
controlling imports to help support domestic pork prices.
Additionally, to curb imported pork products, Chinese authorities
have over the past 2 years introduced a number of new subsidy programs
aimed specifically at its pork producers. The most recent program is
the National Hog Price Alert System, which is designed to ensure
profitability and expansion of China's hog production. In addition, the
Chinese pork industry derives significant benefits from a full
exemption from the corporate income tax and a partial exemption from
the country's value-added tax.
The United States is able to produce pork at a much lower cost than
China. In mid-2008, it cost about 55 cents a pound to produce a live
hog in the United States compared with 84 cents in China. With its
competitive cost advantage--even with the recent rise in hog production
costs--the United States would be a huge supplier of pork to China in
the absence of the Chinese import restrictions and subsidy programs.
How big? China's pork imports in 2008 accounted for about one
percent of total domestic consumption. (This compares with, for
example, Japan's 50 percent, South Korea's 30 percent and Australia's
22 percent.) If China were to open its market to allow imports to
account for 25 percent of total consumption, pork imports to the
country would be 11.6 million metric tons. Even if the United States
captured just a 25 percent share of that--compared to the 60 percent
share it had in 2008--this would translate into U.S. pork exports to
China of 2.9 million metric tons, an amount equivalent to 27 percent of
total U.S. pork production. (Remember, in 2008 the U.S. pork industry
exported to all countries 20 percent of production; it exported about
five percent of production to China.) This would represent more than a
doubling of U.S. pork exports to the entire world in 2008. A surge in
U.S. pork exports of this magnitude would generate enormous benefits
not only for the U.S. pork economy but for the U.S. rural economy.
The U.S. pork industry also has dealt with over the past 2 years a
number of other trade issues that have dampened exports, including, for
example, the arbitrary and non-science-based ``delisting'' of U.S. pork
facilities by Russia and a change in that country's quota system for
imported pork. Government officials in the country publicly have stated
that they want to limit the amount of imported pork as a way to protect
their domestic pork industry.
From 2005--the year the U.S. and Russia signed a meat agreement--
through 2008, U.S. pork exports to Russia grew at an explosive pace,
increasing in volume terms by more than 400 percent and in value by
nearly 600 percent.
But over the past year and a half, Russia has ``delisted'' or
failed to relist more than 30 U.S. pork production, processing and
storage facilities, meaning more than 50 percent of U.S. pork
production is ineligible for export to the country.
Russia did not identify any health or sanitary reasons for its
actions, which are contrary to obligations contained in a 2006 side
agreement that is part of World Trade Organization bilateral
negotiations between Russia and the United States. The agreement
established specific criteria and methods for Russian approval of U.S.
pork plants. The actions also are inconsistent with the WTO's Sanitary
and Phytosanitary (SPS) Agreement, which requires WTO trading partners
to recognize the SPS measures of other countries as equivalent to their
own. (Russia does not adhere to the WTO principle of equivalence and
approves U.S. meat facilities on a plant-by-plant basis.) The U.S.
Government and the U.S. pork industry have demonstrated to Russian
Government officials the effectiveness of the U.S. pork plant
inspection system in ensuring a high level of product safety.
On the quota issue, last year the Russians demanded that the ``out-
of-quota'' tariff on pork imports be raised. Consequently, in December
2008 the U.S. and Russia renegotiated the 2005 meat agreement, with
Russia increasing the 2009 out-of-quota tariff from 40 percent to 75
percent. In return, the U.S. pork ``in-quota'' amount--the quantity of
pork subject to a lower tariff--was raised.
Russia currently is insisting on another renegotiation of the pork
quotas with the intention of further reducing the U.S. quota and
restricting U.S. pork imports. These demands are unacceptable to U.S.
pork producers. It is ironic that a country that seeks U.S. support for
its WTO accession and that wants Congress to grant it Permanent Normal
Trade Relations status is restricting rather than expanding access to
its market.
The plant delistings coupled with its limited H1N1-related ban and
the uncertainty surrounding the quotas have resulted in a 39 percent
decline in U.S. pork exports to Russia in the first 8 months of 2009.
The result of all of the restrictions on U.S. pork exports--and
undoubtedly of the global economic slowdown--has been a drop of 11
percent in U.S. pork exports from January through August 2009 compared
with the same period in 2008. U.S. pork exports to China are down 50
percent through August and to Russia 39 percent.
NPPC urges Congress and the Obama Administration to pressure China
to lift its H1N1-related ban on U.S. pork, to drop its objections to
ractopamine and to eliminate its hog and pork subsidies; and it urges
the U.S. Government to maintain the current U.S. country allocation for
pork under Russia's global pork tariff rate quota at a level of market
access equal or greater to that in 2008, to insist that Russia relist
all U.S. pork facilities and to pressure Russia to agree to accept the
U.S. meat inspection system as equivalent to its system and accept pork
from all USDA-approved facilities. Russia should not be given special
treatment but rather should be required, like China and Vietnam when
they were joining the World Trade Organization, to memorialize with the
U.S. the WTO principle of equivalence.
NPPC was heartened to hear that the Obama Administration's trade
agenda has as a top priority enforcement of existing trade agreements,
and it asks Congress to support the Administration on this. China and
Russia should be at the top of the list.
While enforcement is important, exports have increased dramatically
because of free trade agreements, starting in 1994 with implementation
of the North American Free Trade Agreement and in 1995 with the
conclusion of the Uruguay Round of the then-General Agreement on
Tariffs and Trade. As a result of those and subsequent trade deals,
U.S. pork exports have grown by more than 750 percent in value terms
since then.
Given that result and the U.S. pork industry's current economic
crisis, it is imperative that Congress approve as soon as possible the
pending free trade agreements with Colombia, Panama and South Korea,
which would add greatly to U.S. pork producers' bottom line. The U.S.-
Korea FTA alone would add $10 to the price producers receive for each
hog marketed, according to Iowa State University economist Dermot
Hayes.
Regional Effects
Obviously, the effects of the current economic crisis are somewhat
regionalized, affecting the pork-producing states clustered in the
Midwest and those in the mid-Atlantic (mostly North Carolina,
Pennsylvania and Virginia) more than other states.
North Carolina, for example, is one of the nation's leading pork-
producing states. Its pork industry provides jobs, pays taxes and
supports civic and social groups. The pork industry's economic impact
is widely felt in local communities, especially rural communities,
across the state. The state's farm families and production companies
operate some 2,200 farms.
The income from these farms was North Carolina's second leading
source of gross farm income in 2007 (the most recent year for which
data is available). Hogs generated slightly more than 22 percent of all
North Carolina farm receipts. Looking beyond cash farm receipts, the
combined effects of swine production and pork packing and processing in
North Carolina in 2007 were estimated at more than $7.2 billion in
sales, $2.25 billion in value-added income and 46,657 jobs--more full-
time jobs than North Carolina's entire Research Triangle Park provides.
Simply put, the pork industry is important to all of North Carolina
and most especially, eastern North Carolina. But the industry is facing
a crisis that could cause large-scale output reductions with a
resulting loss of farm family producers and associated businesses and
jobs.
At least three North Carolina hog producers have filed for
bankruptcy or are in the process of doing so (Triangle Business
Journal). The extended period of deep losses has drained the equity of
all hog producers. As producers try to cut supply to increase pork
prices, barns are being left empty. Similar events have been occurring
over the past year in the broiler and turkey sectors in North Carolina.
Some farmers faced foreclosure on broiler houses when a major producer
went bankrupt. The implications extend throughout the rural communities
in North Carolina, which are supported by these farming and meat-
processing operations. Reduced production means lost income, lost
employment, lost capital investment, lost tax base and lost economic
activity throughout the local and state economy. Hog production
represented 22.1 percent of North Carolina cash receipts from
agriculture in 2007. Broilers (28.5 percent) and turkeys (5.9 percent)
along with pigs account for 56.5 percent of North Carolina cash
receipts from agriculture, so losses in these sectors have major
effects in the state.
North Carolina has marketed about 18 million pigs or more per year
over the last decade. National average losses of nearly $23 per head
marketed mean about $828 million of equity lost in North Carolina over
the past 2 years. Each dollar of lost income in hog production is
estimated to result in 80 cents lost elsewhere in the North Carolina
economy, so the state has lost an estimated $662 million in additional
income. The combined effects of the pork sector crisis are estimated at
$1.5 billion in lost income in North Carolina over the past 24 months
with further losses anticipated over the next several months. State and
local taxes based on income and sales are directly affected.
Job losses also result from reduced hog production. An estimated
8,000 full-time jobs existed in hog production in North Carolina in
2007. With an estimated five percent reduction in hog production in the
state, about 400 full-time jobs have been lost. Each job in hog
production is estimated to support 2.43 jobs elsewhere in the North
Carolina economy. The loss of 400 jobs in hog production resulted in an
estimated 970 jobs lost elsewhere in North Carolina, for a combined
loss of 1,370 jobs in the state.
Capital losses due to reduced hog production include the loss of
capital invested in buildings, land improvements and equipment.
Buildings and equipment dedicated to hog production were estimated to
have a depreciated value of $500 million in 2007. Abandoning five
percent of that capacity resulted in a loss of $25 million in capital
and property tax base.
Reduced hog production also reduced pork packing and processing.
North Carolina experienced reductions in pork processing capacity over
the past year. Further reductions are possible if hog production is
further reduced in the state and regionally. The North Carolina pork
processing sector was estimated to employ 11,686 people and generate
$450 million per year in (value-added) income in 2007. The five percent
reduction in pork packing and processing is estimated to have caused a
loss of 584 full-time jobs and $22.5 million in annual income in North
Carolina. Each job and $1 of income in pork processing are estimated to
support 0.565 jobs and 59 cents of income, respectively, elsewhere in
the North Carolina economy. So the five percent reduction in pork
processing is estimated to have cost the rest of the state's economy
330 full-time equivalent jobs and $13.3 million of income.
Suffice to say, when added to the losses imposed on the state's
broiler and turkey industries by higher feed prices, the effects of the
current economic disaster in the U.S. pork industry are particularly
severe in North Carolina. But North Carolina is by no means unique. The
economic crisis is being felt by producers in Georgia, Iowa, Kansas,
Minnesota, Oklahoma, Pennsylvania, Texas, Wisconsin, and, in fact, in
all pork-producing states, with some hog farmers going out of business
and others on the brink of bankruptcy.
Pork Industry Efforts
For its part, the U.S. pork industry has been working over the past
2 years to help pork producers deal with the economic crisis. NPPC has
worked closely with the previous and with the present Administration to
keep export markets open.
NPPC officers and staff, for example, have worked with their
counterparts in Canada and Mexico to keep pork trade flowing to those
important U.S. markets and have collaborated with the Office of the
U.S. Trade Representatives (USTR) to resolve trade issues with
Australia, Mexico and the Philippines.
Of course, the organization has been a strong and consistent
supporter of additional free trade agreements--including the pending
FTAs with Colombia, Panama and South Korea--which historically have
boosted U.S. pork exports.
When the 2009 novel H1N1 flu outbreak occurred in late April, NPPC
worked closely with the National Pork Board and the Obama
Administration to communicate to the media, the public and U.S. trading
partners that pork is safe to eat and that the 2009 novel H1N1 virus is
not transmitted through food, including pork.
NPPC also has asked the U.S. Department of Agriculture to provide
assistance to struggling producers.
In April 2008, with no signs of the then-6-month-old crisis
abating, NPPC officers met with then-Agriculture Secretary Ed Schafer
to ask that the Department make a supplemental purchase of pork. (USDA
annually buys pork and other products for various Federal food
programs. It bought $62.6 million of pork in 2008, for example.) They
also asked that the Secretary implement emergency programs and loan
guarantees to help producers purchase feed, consider allowing early
release without penalty of non-environmentally sensitive Conservation
Reserve Program acres back into crop production and support pork
exports through USDA's Market Access Program and Foreign Market
Development Program. The Bush Administration May 1, 2008, agreed to
purchase up to $50 million of pork products.
At the beginning of 2009 and once more just after the 2009 novel
H1N1 flu outbreak in late April, NPPC again asked USDA to lend
assistance to the U.S. pork industry, each time urging Secretary Tom
Vilsack to make additional supplemental purchases of pork. USDA in late
March agreed to buy $25 million of pork.
Finally, in August of this year, NPPC yet again urged USDA to take
immediate action to address the continuing pork industry economic
crisis, asking that the agency to:
Purchase immediately an additional $50 million of pork for
various Federal food programs, using fiscal 2009 funds.
Use Section 32 funds to purchase pork. Section 32 uses
customs receipts to buy non-price-supported commodities for
food-assistance programs.
Buy on Oct. 1 a minimum of $50 million of pork, using fiscal
2010 funds.
Use $100 million of the $1 billion appropriated for
addressing the 2009 novel H1N1 virus for the swine industry,
including $70 million for swine disease surveillance, $10
million for diagnostics and 2009 novel H1N1 vaccine development
and $20 million for industry support.
Work with USTR to open export markets to U.S. pork, focusing
on the countries, including China, that continue to impose
unwarranted H1N1-related bans on U.S. pork.
Study the economic impact on the livestock industry of an
expansion of corn-ethanol production and usage. The U.S.
Environmental Protection Agency has proposed raising the cap on
blending ethanol into gasoline to 15 percent from its current
ten percent.
In early September, USDA agreed to purchase $30 million of pork,
using fiscal 2009 funds.
NPPC is grateful to USDA for its assistance and strongly urges the
Department to make additional pork purchases. It also is grateful to
the Members of Congress who signed onto a letter circulated by
Congressmen Tim Walz, D-Minn., and Steve King, R-Iowa, to Sec. Vilsack,
asking that USDA make additional purchases of pork.
NPPC now asks that Congress reexamine the spending cap placed on
Section 32 funds as part of the 2008 Farm Bill. NPPC believes such
action is warranted given that economic conditions in the livestock,
dairy and poultry industries now are materially different than they
were during most of the farm bill debate. While it understands that
lifting the Section 32 cap is a long-term goal, the U.S. pork industry
is prepared to work with Congress to achieve this outcome.
Conclusion
The U.S. pork industry is an integral part of the U.S. economy,
generating more than half a million jobs, adding nearly $35 billion to
the gross national product, contributing to a positive agriculture
balance of trade and providing consumers around the globe with the
safest, most nutritious meat protein in the world.
The industry, so far, has weathered the now 2 year-old economic
crisis, which is not of its own making but is the result of forces
mostly beyond its control, through the perseverance of the producers
who every day provide the best care possible to their hogs, use animal
health products judiciously and responsibly, protect the environment,
watch out for the safety of their workers and contribute to the
communities in which they live and work.
As it did a decade ago when pork prices plunged to record lows, the
U.S. pork industry will survive the current economic crisis--though, no
doubt, as a much smaller sector. But U.S. pork producers are in need of
lawmakers' continued assistance, and that means:
Making additional purchases of pork for Federal food-
assistance programs.
Working with U.S. trading partners to get them to keep open
or, if they've closed them, re-open their export markets.
Passing free trade agreements, including the pending ones
with Colombia, Panama and South Korea.
Allowing the ethanol import tariff and Federal blenders' tax
credit to expire.
Studying the economic effects on the livestock industry of
an increase in the amount of ethanol blended into gasoline to
15 percent from the current ten percent.
Approving regulations and legislation that promote pork
producers' ability to run their operations.
Opposing regulations and legislation that would place an
undue burden and higher costs on U.S. pork producers such as a
ban on certain antibiotics.
With a little help, the U.S. pork industry will bounce back and
continue to provide safe, nutritious pork products to consumers
worldwide.
Figures
Figure 1
Cash Corn Price, Omaha, Weekly
Figure 2
Oil and Corn Prices Link
Mr. Boswell. Thank you for your testimony.
Mr. Greenwood.
STATEMENT OF MARK GREENWOOD, VICE PRESIDENT, AGRI BUSINESS
CAPITAL, AgStar FINANCIAL SERVICES,
MANKATO, MN
Mr. Greenwood. Thank you, Members of the Subcommittee, for
inviting me to present testimony today regarding the
availability of credit for the swine industry. My name is Mark
Greenwood. I am Vice President of commercial lending for AgStar
Financial Services headquartered in Mankato, Minnesota. AgStar
Financial Services is a cooperative owned by our client
stockholders and is one of 95 institutions that together
comprise the Farm Credit System. AgStar is one of the larger
farm credit associations serving more than 23,000 clients and
managing nearly $8 billion in loan and lease assets. My
testimony today represents the views of AgStar and does not
represent the views of the entire Farm Credit System.
My role at AgStar is managing the swine portfolio, which
represents $1.4 billion in loan and lease volume, serving
nearly 1,200 clients throughout the United States. I
exclusively handle swine loans and leases with producers of all
sizes. I was born and raised on a hog farm in southern
Minnesota. I have been involved in the swine industry for my
entire business career.
I can clearly tell you that the current financial situation
the industry is facing is the worst I have ever seen in 28
years in working with swine producers. In October of 2007, the
loan portfolio of swine producers that I worked with was in the
best shape ever. Average owner equity was close to 70 percent.
Working capital was abundant and most producers were in a very
strong financial position. Most of these producers believed
that they could handle some adversity for the future. Many
producers I worked with had no debt and had a cash surplus. Now
many of these same producers face dire financial circumstances.
I am going to show a couple slides here. It just talks
about volatility and cost of production from where we saw it,
basically, back in 2006. In August of 2008, cost of production
was actually 145 percent greater in 2008 than it was back in
2006. This year it was 121 percent greater than it was back in
2006. And the other point to make is just volatility in the
marketplace. Just in this past year, it is unprecedented. I
received an e-mail from a market advisor in Chicago and he said
I have never seen this in 25 years. We have seen costs of
production from September 2007 to today actually increase by 15
to 20 percent. This is a span of 6 to 7 weeks. This is
unprecedented.
The next point is just looking at owner equity decline, and
this is where I see the industry. We are currently at about 30
percent owner equity, and the scenarios that we have seen in
many swine producers, from a lender's perspective, when the
owner equity is approaching 30 percent, the risk in the credit
increases dramatically. The borrower is likely to have tapped
all their cash reserves and now you are at a crossroads, and
that is where I see the industry today. We are truly at a
crossroads both for the producer and the lender. From a
lender's perspective, the last thing we ever want to do is put
people out of business. However, it does not make sense for us
to keep funding losses forever. The outlook for the next 6
months shows that more loses are coming. Without clear
indications this down spiral in equity will change, prudent
lenders and producers face difficult decisions about whether
the best choice is to exit the business.
The economic stresses facing the pork industry have far-
reaching impacts on towns, small businesses and families in the
heart of rural America and beyond, because money generated by
pork production circulates many times in the economy. When a
pig owner is in financial trouble, it affects many people.
Young and beginning farmers that are contract growers for the
pig owners now have empty barns and no source of revenue to
service their debt. That producer used to generate sales for
local feed dealers, equipment suppliers, veterinary services
and other local business, all which are now being affected
because the producers are getting out of the industry. The
volatility of this industry will impact capital availability,
going forward. Lenders will not be willing to lend into an
industry that has lost money unless there is a stronger linkage
with a financially strong supplier, going forward. Remember, we
had producers with no debt in 2007 that are now insolvent.
Under the current system, pigs are being bought. Lenders and
producers are not going to be in the same position to have this
happen again.
In conclusion, the pork industry needs your help. Offering
higher FSA loan limits would help lenders deal with the risk of
continuing to provide credit to the industry. The current loan
is simply too low for many family farmers. USDA should
aggressively help by purchasing pork for use in Federal food
programs. We thank you for your past support. Also, helping on
the export and free trade would also be a benefit. The success
has led to the industry to the brink of economic collapse for
being the best in the world at what we do. The industry needs
your help and support. As a lender, rest assured we are doing
all that we can to stay with the industry and our borrowers,
but we can't put the institution at risk by doing so.
I thank you for holding this important meeting today and I
would be glad to answer any questions that you may have for me.
Thank you.
[The prepared statement of Mr. Greenwood follows:]
Prepared Statement of Mark Greenwood, Vice President, Agri Business
Capital, AgStar Financial Services, Mankato, MN
Thank you Chairman Scott, Ranking Member Neugebauer, and Members of
the Subcommittee for inviting me to present testimony today regarding
the availability of credit for the swine industry.
My name is Mark Greenwood. I am Vice President of Commercial
Lending for AgStar Financial Services, headquartered in Mankato, Minn.
AgStar Financial Services is a cooperative, owned by our client-
stockholders, and is one of 95 institutions that together comprise the
Farm Credit System. We provide a broad range of financial services and
business tools for agricultural and rural clients in Minnesota and
northwest Wisconsin. AgStar is one of the larger Farm Credit
associations, serving more than 23,000 clients and managing nearly $8
billion in loan and lease assets. My testimony today represents the
views of AgStar and do not necessarily represent views of the entire
Farm Credit System.
My role at AgStar is managing the swine portfolio, which represents
over $1.4 billion in loan and lease volume serving nearly 1,200 clients
throughout the United States. I exclusively handle swine loans and
leases with producers of all sizes. I was born and raised on a hog farm
in Southern Minnesota and have been involved in the swine industry for
my entire business career. I can clearly tell you that the current
financial situation the industry is facing is the worst I have ever
seen in 28 years of working with swine producers.
In October of 2007, the loan portfolio of swine producers that I
worked with was in the best shape ever. The average owner equity was
close to 70%, working capital was abundant, and most producers were in
very strong financial position. Most of these producers believed that
they could handle some adversity for the future. Many producers I
worked with had no debt and had a cash surplus. Now, many of these same
producers face dire financial circumstances.
In the past 24 months, volatility in both the cost of production
and in the revenue producers receive has increased dramatically. In
2008, the average cost to raise a hog was approximately $165 a head and
revenue was close to $140 a head. While this was one of the better
years recently in terms of revenue, because of higher costs, most
producers lost on average close to $25 per head. Producers that raised
the majority of their own corn fared better because the cost to raise a
bushel of corn was significantly less than producers who had to buy
their corn. The best estimate for producers that raised their own corn
actually broke even in 2008, but in 2009 since the cost to raise a
bushel of corn increased significantly, their losses have been larger
than producers that were buying a majority of their corn.
During 2009, the average loss per head has been about $25 per head,
just as it was in 2008. Considering this level of losses over the past
24 months, the overall losses for producers are now approaching $5
billion. If you relate this to an average family farmer, assume a farm
has 1,200 sows and they finish all of the animals. They had total
assets of $3 million and in October of 2007, they had a net worth of
70% which equals $2.1MM. Again, if we assume the farm has lost $25 per
head for the past 24 months, their total losses would equal $1,200,000
and their owner equity will have fallen to 30% from the 70% it was 2
years ago. This scenario is the norm for what we are seeing on many
swine operations. From a lender's perspective, when the owner's equity
is approaching 30%, the risk in the credit increases dramatically
because the borrower is likely to have tapped all of their cash
reserves and you now are at a crossroads. This is where I see the swine
industry today; we are truly at a crossroads both for the producer and
the lender. From a lender's perspective, the last thing we ever want to
do is force people out of business. However, it does not make sense for
us to keep funding losses forever. The outlook for the next 6 months
shows that there are more losses coming. Without clear indications that
this downward spiral in equity will change, prudent lenders and
producers face difficult decisions about whether the best choice is to
exit the business.
The economic stresses facing the pork industry have far-reaching
impacts on towns, small businesses, and families in the heart of rural
America and beyond, because money generated by pork production
circulates many times in the economy. When a pig owner is in financial
trouble, it affects many other people. Young and beginning farmers that
are contract growers for the pig owners now have empty barns and no
source of revenue to service their debt. That producer used to generate
sales for local feed dealers, equipment suppliers, veterinary services
and other local businesses all of which are now being affected because
the producers are getting out of the industry.
The volatility of this industry will impact capital availability,
going forward. Lenders will not be willing to lend money into an
industry that has lost money unless there is a stronger linkage with a
financially strong supplier, going forward. Remember we had producers
with no debt in 2007 that are now insolvent, under the current system
pigs are being bought. Lenders and producers are not going to be in the
same position to have this happen again.
We are seeing producers cut back, but it is taking time for this
process to impact the marketplace. The industry, according to many
economists, needs to shrink by 8-10 million head or something must be
done to stimulate that much more consumption. If the only alternative
is to shrink production, this will result in significant job loss in
rural America and will also affect many main street rural businesses.
In conclusion, the pork industry needs your help. Offering higher
FSA loan limits would help lenders deal with the risk of continuing to
provide credit to the industry. The current loan limit is simply too
low to help many family farmers. USDA should aggressively help by
purchasing pork for use in various Federal food programs. The U.S. pork
industry has proven it is the best in the world at raising pork from a
competitive standpoint. That success has led the industry to the brink
of an economic collapse. The industry needs your help and support. As a
lender, rest assured, we are doing all that we can to stay with the
industry and our borrowers but we can't put the institution at risk by
doing so.
I thank you for holding this important hearing today, and I am glad
to answer any questions that you may have for me.
Attachment
Boswell. Thank you.Dr. Buhr.
STATEMENT OF BRIAN BUHR, Ph.D., PROFESSOR, HEAD AND E. FRED KOLLER
CHAIR IN APPLIED ECONOMICS, UNIVERSITY OF MINNESOTA, ST. PAUL, MN
Dr. Buhr. Mr. Chairman, Members of the Subcommittee, thank you for
inviting me here today. I am Brian Buhr, Professor, Head and E. Fred
Koller Chair of Applied Economics at the University of Minnesota. My
specialization is agriculture commodity marketing and price analysis
with an emphasis on the livestock and meat sector. I received a Ph.D.
at Iowa State University in 1992.
The U.S. pork industry is undergoing the longest and deepest
economic loss in the past 20 years. Records complied by the University
of Minnesota Center for Farm Financial Management show losses over $13
and over $10 per head sold in 2007 and 2008, respectively. Multiplying
these per-head losses by the 250 million head of hogs marketed in 2007
and 2008 indicates a total pork industry farm loss of $2.5 billion in
those 2 years. Producers are expected to lose another almost $31 per
head in 2009 for another annual loss of $3 billion. This would bring
the total 3 year losses to $5.5 billion.
It is likely losses will continue well into 2010. With current corn
prices at $3.50 a bushel in April 2010, lean hog futures trading at
$65, producers will just break even on these pigs, assuming they buy
all their feed needs for finishing right now. However, significant
concern is that cost increases will again undermine profitability.
Crude oil prices are rising with December crude oil futures moving from
$66 a barrel in September to nearly $80 a barrel in October. With the
link to crude oil through ethanol, December 2009 corn futures have also
rallied from $3 a bushel to $3.80 a bushel in October. Any further
increases will deepen the pork industry's losses and extend their
length.
With large losses in 2009, pork producers are expected to reduce
production by about 2.5 percent. However, my estimate suggests that the
pork industry will need to reduce production another seven percent to
reach sustained profitability. This will result in as much as a 30
percent increase in retail pork prices at a time of economic distress
for consumers as well. Still, with 2 years of losses, one has to ask,
why didn't pork producers reduce production sooner? Are pork producers
responsible for mismanaging their production levels? The answer is no.
Looking back at futures prices demonstrates why. For the entire period
of 2007 through 2010, the June lean hog futures price averaged $76 per
carcass hundredweight. These prices were easily observed by producers,
and using these values and other production cost results in a break-
even corn price of $4.90 a bushel, well above the average corn price of
$3.90 a bushel. Producers rightfully formed economic expectations that
hog prices would follow cost increases and pork production would be
profitable. Unfortunately, national cash hog prices, the price that
producers actually receive when hogs are sold, averaged only $62 per
carcass hundredweight for the period, $15 below the average futures
price. Why was there this discrepancy between expectations and
outcomes? While producers observed higher feed prices and higher lean
hog futures prices, very few anticipated the global financial crisis
causing a dramatic run-up in the dollar, reducing export demand, or the
public relations disaster of the H1N1 flu virus being misnamed swine
flu and the resulting importer restrictions on U.S. pork, or the
productivity boosting benefits of new porcine circovirus vaccine or the
prolonged economic downturn resulting in increased unemployment and
lower personal income that will likely continue to reduce demand. In
short, unlike other hog cycles where producers' own actions may have
had a significant role in determining the best and worst outcomes, this
hog cycle has much to do with conflicting market signals and several
broader economic events outside the fundamentals of the pork industry
that arguably victimized otherwise good producers.
In conclusion, the pork industry is under severe financial
distress, having lost over $5.5 billion in the past 3 years. Among many
potential policy responses I would like to suggest five possible
actions. One, provide increased capital to agricultural lenders to
support their balance sheets and maintain credit to high-quality
producers; two, promote risk and business management education programs
we have heard about earlier; three, support additional farm mediation
resources for producers under stress; four, increase pork purchases in
response to increased need for food assistance programs due to rising
unemployment and declining personal incomes; and fifth, support opening
international markets and reducing unsubstantiated barriers to U.S.
pork imports.
Mr. Chairman, thank you for the opportunity to present this
testimony. I look forward to hearing your questions.
[The prepared statement of Dr. Buhr follows:]
Prepared Statement of Brian Buhr, Ph.D., Professor, Head and E. Fred
Koller Chair in Applied Economics, University of Minnesota, St. Paul,
MN
Situation
The U.S. pork industry is undergoing the longest and deepest
economic losses in the past 20 years. Farm records compiled by the
University of Minnesota Center for Farm Financial Management (CFFM)
(www.cffm.umn.edu) show losses were $13.40 per head sold in 2007 and
$10.27 per head sold in 2008. Estimates from Iowa State University
suggest losses have been even greater: $14.55 per head in 2007 and
$21.99 per head in 2008. The deeper losses estimated by Iowa State are
because they assume that only prices impact profits. However, actual
farm records likely demonstrate that producers respond to lower prices
by trying to change production practices thereby reducing costs and
providing some mitigation.
CFFM data shows losses for the industry, which had a federally
inspected market hog harvest of more than 104 million head in 2007 and
111 million head in 2008, total about $1.4 billion in 2007 and more
than $1.1 billion in 2008. This total of more than $2.5 billion in
losses since 2007 is greater than the estimated $2.4 billion losses in
1998, which according to CFFM records was a 1 year event followed by
positive profits typified by the usual hog cycle.
Based on year to date numbers, 2009 is shaping up to be even worse
than 2007 and 2008 making this the longest continuous stretch of losses
for the modern pork industry. My projections, based on cost parameters
from CFFM and hog, corn and soymeal prices from January 2009-September
2009, estimate losses of $30.85 per head for 2009. For any individual
producer, this number will be higher or lower depending on when and at
what price they purchased feed inputs and marketed hogs, and how they
marketed hogs (for a negotiated price or under some form of contract).
The losses are more dependent than normal on these factors because of
the extraordinary volatility the pork industry has faced during the
past 2 years. For example, the 27 percent of producers that sell under
``other market formula'' or ``other purchase arrangements'' instead of
on a ``negotiated'' basis or a ``swine/pork market formula'' basis,
sold hogs at an average of $6 per hundred pounds of carcass weight
higher. If a producer purchased a significant share of corn in fall
2006 for 2007 feeding needs, the producer paid about $2.40 per bushel
for corn. If corn was purchased throughout 2007 or 2008 a producer paid
an average $3.39 to $4.78 per bushel for corn and if the producer
purchased at the high of 2008, as many ethanol plants did out of
concern for even higher projected prices, the producer paid as much as
$5.47 per bushel. In short, this hog cycle has much to do with
conflicting market signals and some key decisions that may be as much
about luck as about management, arguably victimizing otherwise good
producers.
It is likely losses will continue well into 2010. Pigs born in
October 2009 will be sold in April 2010. With current corn prices at
$3.54 per bushel and April 2010 Lean Hog futures prices trading at
about $65 per carcass hundredweight, producers will just break-even on
these pigs assuming all feed needs for finishing are purchased now.
However, corn prices are once again rising and delay break-evens
further into the future. The period between October and April will be
worse, with average losses between $10 and $23 per head. At current
market hog harvest rates about 2.5% less than 2008, the total expected
loss for 2009 will be about $3 billion. This will bring the 3 year
total losses to over $5.5 billion since the beginning of 2007.
How Did the Pork Industry Get Here?
Non-Pork Sector Causes
How did the pork industry get into this situation? There is one
very direct reason the pork industry had losses beginning in 2007--high
corn and soybean meal prices that began in August 2006. Figure 1 shows
the prices of corn and soybean meal back to 1996. In August 2006 there
was a sharp increase in prices of all crops; this dramatic change did
not allow pork producers to respond with reduced production.
What was the cause of higher crop prices? Figure 2 shows total corn
demand by type of use. There has been an increase in corn use for food,
feed and industrial uses which includes ethanol. Part of this increased
use was due to renewable fuel standards, but it's unlikely that this
was the sole cause of the dramatic price increases. Another factor was
the rapid global economic growth and declining dollar which led to
increased demand for commodities including oil and grains, and also an
increase in meat demand that itself increased demand for feed grains
and oilseeds. This rising global growth, coupled with rising demand
affecting broader commodities is a key factor in the pork industry's
lack of immediate response.
All indications in 2006 and even into 2007 were that global demand
for agricultural commodities would continue to rise. Although a forward
looking pork producer was concerned about rising grain prices, the
reasonable expectation was that hog and pork prices would eventually
follow. Essentially, like much of the rest of the world, including
Federal Reserve Chairman Bernanke (WSJ, 7/16/08), pork producers
expected growth to continue and prices to rise--allowing global growth
to pull them out of the looming cost price squeeze.
The expected potential for price improvement is shown by the
dramatic increase in pork exports in Figure 3. In hindsight, this chart
also shows how much exports have declined since the highs, although
pork exports remain on long run trend in recognition of the overall
strength of demand for U.S. pork.
Weekly Omaha no. 2 corn and Decatur 48% protein soybean meal (1996-
present).
Total corn disappearance by type of use. Source: USDA, ERS Feedgrains
Database.
U.S. total net pork exports and pork exports to selected countries.
Part of this brief run-up in exports was due to global economic
conditions and illustrated by the dramatic fluctuations associated with
the dollar shown in Figure 4. As shown, pork exports increased as the
value of the dollar decreased more rapidly beginning in 2002 and 2003.
Exports, especially to China, react in tandem with the currency
exchange rate primarily because the Chinese yuan does not freely float,
so that a declining dollar or increasing dollar almost impacts the cost
of pork to China on a one-for-one basis. This has again created global
volatility difficult for pork producers to respond to, and which is not
driven solely by the supply and demand factors fundamental to the pork
sector. This trade relationship is also impacting other protein sectors
such as dairy products.
Pork Industry Fundamental Causes
Certainly fundamental aspects of pork markets have played a role in
the current crisis. Figure 5 shows annual September hog inventories.
The overall trend for breeding herd is declining, primarily due to the
increased productivity for each sow in the breeding herd. The
productivity contrast is shown by the sharply increasing market hog
inventories. This productivity increase has allowed producers to
maintain a reasonably valued pork product for consumers, even in light
of rising feed costs. The large relative increase in market hog
inventories in 2007-2008 is due to a new porcine circovirus vaccine
that reduced hog mortalities. This was another factor (economic shock)
not anticipated by pork producers when making production decisions.
Trade weighted dollar exchange rate index and net pork export
relationship.
Hog inventory trends and increasing productivity per sow.Higher
inventories resulted in both higher slaughter and production levels
during 2007 and 2008 as shown in Figure 6. The rising production levels
relative to slaughter (narrowing gap between slaughter and production)
are due to higher slaughter weights in hogs. This is again due to
production efficiency improvements where hogs can be fed more cost
effectively to heavier weights using less feed.
Federally inspected hog slaughter and pork production.As shown in
Figure 5, the pork industry is now responding to the sharply
deteriorating market conditions experienced in 2009 by reducing
breeding herd and market hog inventories by about 2.5 percent. However,
using an equilibrium model of the pork industry that allows for
simulation of quantity and price relationships, it is estimated that
the total reduction in pork supplies to achieve the 21 percent increase
in prices necessary to reach break-even is about ten percent--or an
additional 7.5 percent reduction in hog and pork supplies. This
dramatic reduction in pork production will also result in a nearly 30
percent increase in retail pork prices, increasing food prices at a
time of rising unemployment and declining personal income.
The demand side of the pork fundamentals is somewhat mixed. Figure
7 shows a scatter plot of pork demand with a linear trend line fit to
represent price quantity trade-offs by consumers. Points approaching
the origin represent weaker demand and points moving up to the right
represent stronger demand--that is, consumers willing to consume more
pork at higher prices. Domestic pork demand has been low relative to
historical levels ever since 2005. This has been offset by very strong
export demand for U.S. pork and these points also belie the fact that
total consumption is at record levels, because it is affected by total
population. Still, maintaining pork demand is a key concern as the
economy weakens, unemployment rises, and personal incomes decline
(Figure 8). Surprisingly, 2009 has been relatively strong (higher
quantity consumed at slightly higher prices) compared to 2008
especially in light of concerns regarding the effects of H1N1 on
consumer perceptions regarding pork safety. The Food Industry Center in
Applied Economics at the University of Minnesota has created a
``Consumer Food Safety Tracker'' to track consumer knowledge about
media information on food safety events. On April 29, 2009 they began
tracking consumer response to H1N1. Within 3 weeks 99.3 percent of
consumers had heard of H1N1. More importantly, in the first 13 weeks,
3.6 percent of respondents said they would avoid eating pork and 2.5
percent said they would avoid eating pork in the last 5 weeks (ending
late September). It is not clear what impact this has had on actual
demand, but it illustrates the importance of communication and
effective information on these issues that could adversely affect
demand. In summary, two key external factors--weakening consumer
purchasing power and H1N1 also are likely to negatively impact pork
demand.
Retail pork demand, 1990-present.Many unforeseen factors including
food and grain price inflation brought on by global economic growth, a
declining U.S. dollar and rising oil prices placed cost pressure on
pork production. This was followed by the global economic crisis that
dramatically increased the value of the dollar and reduced foreign
demand for U.S. pork products. Domestically, a new vaccine to reduce
circovirus death loses increased supplies while rising unemployment and
the emergence of H1N1 influenza softened domestic consumer demand for
pork.
U.S. unemployment rate and personal income levels, 1990-2010.Why
Didn't Pork Producers Reduce Production Sooner?
With 2 years of loses, why didn't pork producers reduce production
sooner? Are pork producers responsible for mismanaging their
production? The answer is no. Figure 9 shows a continuous series of
futures prices for the June Lean Hog futures contract for the period
2006-current. These are the hog prices a pork producer would look at in
making production decisions.
For the entire period of 2007 through 2010, the June Lean Hog
futures price averaged $76.06/carcass cwt. These prices were easily
observed by producers, and accounting for soybean meal prices ($310/
ton), weaned pig prices ($35/head) and other costs, result in a break-
even corn price of $4.86/bushel. Therefore, producers rightfully formed
expectations that hog production would be profitable. Unfortunately,
Figure 9 also shows that national cash hog prices (the price actually
received at delivery) averaged $62/carcass cwt. for the period, $15/
carcass cwt. below the average futures price, and most likely due to
the external economic shocks described earlier.
June has on average the highest seasonal price of the year.
However, a similar result emerges for December hogs which tend to
average about 10% lower than the overall annual average for hogs.
Figure 10 shows the average December futures price of $65.64 was closer
to the average cash price of $62.53, but most producers would look at
this futures price as a seasonal low anticipating that the average for
the rest of the year would be higher. Even assuming this price, the
break-even corn price with $310 per ton soybean meal would have been
$3.54/bushel, only about $0.40 below the average price of corn the past
several years.
Continuation series of June Lean Hog futures prices 2007-2010.
Continuation series of December Lean Hog futures prices 2007-2010.O
bviously, corn prices were rising during this period, so it is possible
that producers should have cut back if they expected losses due to
rising costs. Figure 11 shows the hog-corn price ratio for June Lean
Hog futures and July Corn futures as a proxy for profit margins. The
results again show that for all but mid-2008 when corn prices spiked
dramatically, pork producers could expect hog production to be
profitable. Again, as market conditions eroded for hogs more than corn
the actual cash prices received resulted in much lower returns than
anticipated and likely forestalled more rapid and decisive reductions
in the herd.
Hog-Corn price ratio comparison of expected profit margins.This
illustrates that while profitability remained negative, producers were
reasonable in expectations from a theoretical standpoint that higher
feed costs would eventually lead to higher hog prices. The observed
futures markets provided real evidence that the theory was supported by
traders and one could argue that futures traders also bought into that
theory. However, very few anticipated the global financial crisis
causing a dramatic run up in the dollar reducing export demand; the
public relations disaster of the H1N1 flu virus being misnamed swine
flu; the productivity boosting benefits of a new circovirus vaccine;
and the prolonged downturn in employment and personal income that will
likely reduce demand.
Even with these unanticipated shocks, why didn't pork producers
lock in profits when they had the opportunity to do so? The primary
reason is the extreme volatility during this period. During periods of
rapidly changing markets, locking in prices can be as risky as just
staying in the open market expecting that hog prices would follow corn
prices as described earlier. The ethanol industry provided a dramatic
illustration of what could happen if proper hedges weren't placed. In
addition, the use of hedges or options becomes more costly during these
periods as hedge margin requirements increase and option premiums can
be very high due to high volatility. Figure 12 shows the implied
volatility of corn from 2005 to 2009. Implied volatility is calculated
based on option premiums for underlying futures contracts. A higher
volatility implies more risk and option premiums are higher to account
for this risk. From 1997-2004, the annual average implied volatility
was 23.64 percent, since 2004 it has averaged nearly 33 percent and
recently it has hovered between 40 and 50 percent, making it difficult
to execute risk mitigation strategies.
Corn implied volatility.The concern, going forward, is that this
economic scenario of high volatility and rapid cost increases will
repeat itself. Crude oil prices are again rising, moving from $66/
barrel in September to nearly $80 per barrel in mid-October for
December Crude Oil futures. With the link to ethanol, December 2009
corn futures have also rallied from near $3/bushel in September to near
$3.80 in October. Further increases will deepen the pork industry's
losses and extend their length.
Producers are beginning to respond with lower production, primarily
because they have eroded their equity base in production and can no
longer simply hope that markets improve as has been anticipated. As
described earlier, by mid-2010 there should be a rise in pork prices
and profitability. There is potential, given the deep economic
distress, that the liquidation will be extreme, on the order of ten
percent of total production. A disorderly and extreme liquidation will
ultimately harm consumers, also under economic distress, by increasing
retail pork prices by as much as 30 percent.
What Are Some Possible Policy Responses?
The pork industry functions as a relatively competitive market with
mostly secondary benefits from price and income stabilization programs.
However, given the short term nature of this problem it is possible to
provide some support to producers that can help mitigate the crisis.
1. Provide capital or loan guarantees to agricultural lenders to
support competitive pork producers. While many community and
local banks have withstood the credit crisis relatively well
compared to the global banking community, the ability to
continue to carry significant losses on their balance sheet is
limited. Providing capital to lenders allows for them to work
with producers and counsel them on strategies, going forward,
while helping to provide a more stable transition.
2. Financial mediation for pork producers. Anecdotally, farm
mediators in Minnesota are being overwhelmed with new cases.
Many veteran mediators who may have retired from extension
service or other agencies are being called back. There is a
real need to train and attract more professionals to serve as
farm mediators. The Extension Service is one possible conduit
to provide mediation support services to help producers make
good decisions under financially stressful circumstances. This
should also include family counseling on stress.
3. Expand educational programs in marketing and business planning.
As the report demonstrates, there were ample opportunities for
producers to lock in profits using futures or other risk
management strategies. Those who have the necessary marketing
skills have done quite well, however, those who do not, have
had substantial loses. Increasing support of educational
programs on risk management can benefit pork producers. Greater
sophistication is needed with greater systemic volatility.
4. Pork purchasing programs for school lunch and food shelf aid.
According to the Minnesota Department of Human Services, the
number of households using food stamps increased 30 percent
from 2008-2009 and visits to Minnesota food shelves were
greater than two million for the first time (Star Tribune, 9/
28/09). At a time of high demand for food assistance programs,
it seem natural to purchase pork to help support unprecedented
needs based on nearly 10% unemployment rates and declining
personal income.
Mr. Boswell. Well, thank you, Dr. Buhr.
Before we move on, I would like to recognize that Mr. Moran
has joined us. He is not part of the Subcommittee, but he is
certainly part of the full Committee, and my working partner on
the risk management side of it. I have consulted with Mr.
Goodlatte and we decided we would like to have you have full
participation in the Committee today.
Mr. Moran. Mr. Chairman, thank you very much for allowing
me to join you, and I would ask unanimous consent that I be
allowed to join the panel today.
Mr. Boswell. You just heard it was given.
Mr. Moran. It is two for two. Thank you very much, Mr.
Chairman.
Mr. Boswell. With that, I would like to pass on to our next
witness, Mr. Brenneman.
STATEMENT OF ROD K. BRENNEMAN, PRESIDENT AND CEO, SEABOARD
FOODS LLC, SHAWNEE MISSION, KS
Mr. Brenneman. Mr. Chairman, Ranking Member and Members of
the Subcommittee, thank you for the honor and privilege to
appear before you today. My name is Rod Brenneman and I am the
President and CEO of Seaboard Foods. I have provided the
Subcommittee with lengthier testimony for the record, so I will
limit my comments this morning to 5 minutes in keeping with the
rules.
Mr. Chairman, there are many challenges facing the economic
viability of the pork industry including higher input costs for
feed and energy, an overabundance of supply in the domestic
market, weakening demand and international trade barriers.
Higher feed and energy prices shape production decisions and
prices paid for feed doubled from 2006 to 2008, mainly due to
higher corn and soybean meal prices. By mid-2008, corn prices
were nearly 150 percent higher than prices were in 2007, and
soybean meal prices reached record levels during this same time
period.
While there are various reasons for the increase in feed
prices, certainly one of them has been the determined
government policies to promote the use of corn for ethanol.
This effort, while seeking a desirable goal, which is to lower
the U.S. reliance on fossil fuels, has had an unfortunate,
unintended consequence to the U.S. meat industry and ultimately
to consumers. In my opinion, this policy must be reevaluated.
Increase in energy prices has also affected the pork
sector. Meat products require energy-intensive refrigeration
and pork supplies in cold storage at the end of 2009 were
estimated to be 517.9 million pounds, which is three percent
higher than last year at this time and over 19 percent higher
than the 5 year average. To keep pace with rising feed and
energy prices, product pricing must also rise. However, prices
have not risen at an adequate rate as supply has outpaced
demand.
From a supply side, the productivity of U.S. hog production
has continued to increase, and while the long-term trend is up
approximately 1\1/2\ percent per year, the past number of years
have seen an even greater increase in productivity. Granted,
the total volume of pork produced is lower in 2009 than it was
in 2008, but the reduction is still not enough to return pork
producers to profitability. We will need to right-size the
industry by either a further reduction in supply, an increase
in demand or, more likely, some of both.
From a demand standpoint, this past summer's economic data
on prices paid for hogs and pork continues to languish.
Economic factors facing both domestic and foreign consumers in
a recessionary period can be pointed to as one reason for low
hog and pork prices and lower export demand.
Another major reason for the drop in hog and pork prices
was the outbreak of the novel H1N1 influenza. Despite the fact
that it was a human illness and not a swine illness, this
outbreak in April of 2009 had a significant and immediate
impact on the domestic and international pork markets. While
the initial media frenzy misnamed and mischaracterized this as
a food safety issue, this is not a food safety issue at all but
rather a human health issue. If projected out to the end of
2009 and beyond using the futures prices in effect the day
prior to the announcement of H1N1, which was on April 24, the
true cost of this to the pork industry may well exceed $2
billion.
The outbreak of the H1N1 virus led to the enactment of new
trade barriers. Of the 17 countries that banned pork and pork
products from the United States, most notably were Russia and
China. Before the ban, China was one of our fastest growing
markets for pork exports. Until this year the United States had
enjoyed 17 straight years of growth in pork exports. The United
States pork industry is extremely competitive in the world
markets and we must work hard to maintain open access to all
markets and expand into new ones. In my opinion, the government
should not try to address this issue by promoting subsidies to
producers as the industry must downsize and the markets will
force this to occur. We cannot allow trade barriers to be put
in place against U.S. exports, and similarly, we should not
take a protectionist posture against our trade partners. We
need to let the markets work.
In conclusion, I want to recommend two areas for the
Subcommittee to pursue immediately. Number one, to encourage
and work with the Secretary of Agriculture to immediately make
Section 32 funds available for additional purchases of pork for
various Federal food programs. An emphasis should be placed on
purchasing meat from sows with an objective to reduce breeding
stock and correspondingly reduce market hog numbers. And
second, to encourage and work with the U.S. Trade
Representative to open export markets to U.S. pork,
particularly China, which continues to impose non-science-based
restrictions on U.S. pork since the outbreak of novel H1N1.
Thank you for the opportunity to appear before the
Subcommittee, and I will be happy to respond to any questions
that you may have regarding my testimony.
[The prepared statement of Mr. Brenneman follows:]
Prepared Statement of Rod K. Brenneman, President and CEO, Seaboard
Foods LLC, Shawnee Mission, KS
Mr. Chairman, Ranking Member, and Members of the Subcommittee,
thank you for the honor and privilege to appear before you today. My
name is Rod Brenneman and I am the President and CEO of Seaboard Foods.
Seaboard Foods would like to express our appreciation to the
Subcommittee for holding this hearing on the economic conditions facing
the U.S. pork industry.
Seaboard Foods is a vertically integrated pork producer and
processor, producing and selling fresh, frozen and processed pork
products to further processors, foodservice operators, grocery stores,
retail outlets and other distributors in the United States.
Internationally, Seaboard sells to those same types of customers in
Japan, China, Mexico, Russia, Korea and many other foreign markets. In
2008, the U.S. pork industry exported almost 20 percent of the total
pork produced and Seaboard's amounts were in excess of this overall
average at approximately 25 percent.
Seaboard Foods' live production facilities are located in Oklahoma,
Kansas, Texas and Colorado, and are supported by our six centrally
located feed mills. These facilities consist of genetic and commercial
breeding, farrowing, nursery and finishing buildings. Seaboard Foods
produces approximately four million hogs each year, making Seaboard the
second largest hog producer in the United States. Our facilities
consume more than 40 million bushels of corn and milo and over 350,000
tons of soybean meal per year.
Mr. Chairman, Seaboard Foods has experienced the current economic
conditions facing the pork sector first-hand at the production,
processing, marketing and international trade level. As the Members of
this Subcommittee know, there are many challenges facing the economic
viability of the pork sector including higher input costs for feed and
energy, an over-abundance of supply in the domestic market, weakening
demand and international trade barriers.
Input Costs
Higher feed and energy prices shape production decisions and prices
paid for feed doubled from 2006 to 2008, mainly due to higher corn and
soybean meal prices. Corn is estimated to account for upwards of 70
percent of feed grains in pork production and soybean meal accounts for
another 20 percent of the feed. By mid-2008, corn prices were nearly
150 percent above year earlier prices. In addition, soybean meal prices
reached record levels during this same time period. While some will say
that corn prices have declined in 2009--and that is true--they are
still very high when compared to historical levels. While there are
various reasons for the increase in feed prices, certainly one of them
has been the determined government policies to promote the use of corn
for ethanol. This effort, while seeking a desirable goal which is to
lower the U.S. reliance on fossil fuels, has had an unfortunate
unintended consequence to the U.S. meat industry and ultimately to
consumers. Given not only the inefficient results of converting corn to
ethanol but also the impact on food costs and ultimately world hunger,
this policy needs to be re-evaluated and in my opinion, completely
changed. When roughly \1/3\ of the corn crop is used to produce fuel
(ethanol) instead of food, it is difficult for anyone to argue that it
has not had an impact on food prices. In the current year, USDA is
estimating the corn crop to be the second largest crop in the history
of the U.S., yet the current prices for corn are at levels well above
historical trends. The immediate impact has been a significant cost
increase to hog producers, but the ultimate impact will be a food cost
increase to all consumers.
The increase in energy prices has also affected the pork sector by
increasing costs on producers, processing plants, further processors,
and retailers. As you know, meat products require energy-intensive
refrigeration. USDA statistics show total pork supplies in cold storage
at the end of August 2009 were estimated to be 517.9 million pounds.
That number is significant as it is three percent higher than last year
at this time and--over 19 percent higher than the 5 year average. To
keep pace with rising feed and energy prices, product pricing must also
rise. However, prices have not risen at an adequate rate as supply has
outpaced demand.
Supply
From a supply side, the productivity of U.S. hog production has
continued to increase and the long-term trend is up approximately 1.5
percent per year. In recent years this trend has been even higher. We
are producing too much pork to match up with the demand has been
weakened due to a number of factors which I will discuss below. While
the total volume of pork produced is lower in 2009 than it was in 2008,
the reduction is still not enough to return pork producers to
profitability. This imbalance between supply and demand has created
what some might call ``the perfect storm'' for pork producers. We will
need to ``right size'' the industry by either a further reduction in
supply, an increase in demand, or more likely, some of both.
Demand
From a demand standpoint, this past summer's economic data on
prices paid for hogs and pork cuts continued to languish at year-over-
year lower levels at a time of year when prices are typically trending
upwards with higher demand. There are several key reasons for these
depressed prices. Economic factors facing both domestic and foreign
consumers in a recessionary period can be pointed to as one reason for
low hog and pork prices and lower export demand. USDA's Estimated Pork
Carcass Cutout for July showed U.S. wholesale pork prices to be almost
18 percent below prices in July 2007 and nearly 27 percent below prices
in July 2008. You can imagine the impact on prices when you combine an
over-supply of pork with decreased demand and closed market access
around the world. The result is a significant increase in products to
be consumed in the domestic market and a corresponding significant
amount of downward pressure on pork prices.
H1N1
Another major reason for the drop in hog and pork prices was the
outbreak of the novel H1N1 Influenza. Despite the fact that it was a
human illness and not a swine illness, this outbreak in April 2009 had
a significant and immediate impact on the domestic and international
swine and pork markets. Fueled by confusion between a public health and
an animal health issue, swine prices dropped and consumers questioned
the safety of the pork products they were eating; however, Novel H1N1
is not a flu that was caused or spread by pig production nor is this
virus transmitted to humans by consuming pork. In short, this is not a
food safety issue at all--but rather it is a human health issue.
Media reports were alarmist and frequently used the inaccurate term
``swine flu'' to describe this particular strain. And while the novel
strain has some genetic markings derived from swine, it also has
significant human and avian genetic fingerprints. Unfortunately, early
media coverage left that impression, and this was and continues to be
disruptive to hog producers and pork processors.
Since April 24, the date Novel H1N1 was made public, the losses
incurred by pork producers, processors and retailers has totaled in the
hundreds of millions of dollars. Experts are saying that if we project
these losses to October 2009, the total will be well over $1 billion.
And, if projected out to the end of 2009 and beyond using the futures
prices in effect the day prior to the announcement to today, the true
cost of this will not only exceed $1 billion but may very well exceed
$2 billion.
Trade Barriers
Not only has this issue affected the domestic markets, but the
impact of that erroneous association between the novel H1N1 2009 virus,
live hogs, and pork products also lead to the enactment of new trade
barriers. Of the 17 countries that banned pork and pork products from
the U.S., most notably were Russia and China. Russia banned pork and
pork products from 16 states while China banned pork and pork products
from the entire U.S. Before the ban, China was our fastest growing
market for pork exports, importing $268 million in 2008, $147 million
in 2007 and $55 million in 2006. China continues to ban U.S. pork and
has only imported $47 million in the period of January through August
of 2009 compared to $247 million during the same period in 2008.
Russia banned pork and pork products from 16 states and all but
Florida can now ship pork products, depending on the eligible shipping
date. The 15 states that were once banned began to get re-listed for
exports in June and July. Russia was also a good export market for pork
and pork products, taking $390 million in 2008, up from $184 million in
2007. In 2009, U.S. pork and pork product exports to Russia were only
$143 million in the period of January through August, compared to $261
million in the same period of 2008.
Total U.S. pork exports world-wide in 2008 reached $4.4 billion, up
from $2.8 billion in 2007. In the period of January to August 2009,
exports were down 13 percent, at $2.5 billion compared to $2.9 billion
in 2008. Until this year, the U.S. had enjoyed 17 straight years of
growth in pork exports. U.S. pork producers, processors and further
processors are extremely competitive in the world markets, and we must
work hard to maintain open access to all markets and expand into new
ones. We need to let the markets work. The government needs to approach
this crisis in the pork industry from the standpoint of enhancing
demand through purchases of products with and for government programs
and work to open market trade access around the world. The government
should not approach it by promoting subsidies to producers as the
industry must ``right size'' and the markets will respond and this will
occur.
I want to strongly urge each Member of this Subcommittee to
continue to work to keep open the markets we currently have, re-open
the markets that we previously exported products to that are currently
closed, and seek to open up trade channels with new countries around
the world. We cannot allow trade barriers to be put in place against
U.S. exports and similarly, we should not take a ``protectionist''
posture against our trade partners.
Conclusion
Many factors are influencing the current state of affairs in the
pork sector and I am confident that we can address these problems and
make the industry stronger than ever. Two areas I would recommend that
this Committee pursue immediately are:
To encourage and work with the Secretary of Agriculture to
immediately make available Section 32 funds for additional purchases of
pork for various Federal food programs with a maximum emphasis on
purchasing meat from sows with the objective to reduce breeding stock
to reduce hog numbers; and
Encourage and work with the U.S. Trade Representative to open
export markets to U.S. pork, particularly China, which continues to
impose non-science-based restrictions on U.S. pork since the outbreak
of Novel H1N1.
I know many Members of this Subcommittee and of the full
Agriculture Committee have been working on both of these
recommendations and I would like to thank you for your effort's and
encourage you to stay the course. Also, I would like to commend
Congress for recently taking the steps necessary to end the ban on
allowing USDA to perform a risk analysis and issue a final rule on
processed poultry products from China that has been included in recent
Agriculture Appropriations bills. China has continuously pointed to
this ban as a reason not to revisit opening their market to our pork
products and now that issue has been addressed. Chairman Scott, I am
aware of your position on this issue and of the letter you wrote to
Appropriators urging them to address this issue and--I am grateful for
your support.
Thank you for the opportunity to appear before the Subcommittee. I
am happy to respond to any questions that the Member's of the
Subcommittee may have regarding my testimony.
Mr. Boswell. Thank you, and now the chair recognizes Mr.
Moody.
STATEMENT OF DAVID MOODY, CHAIRMAN AND PAST
PRESIDENT, PUBLIC POLICY COMMITTEE, IOWA PORK
PRODUCERS ASSOCIATION, NEVADA, IA
Mr. Moody. Thank you for the invitation to this hearing. My
name is David Moody. I am the Public Policy Chairman and Past
President of the Iowa Pork Producers Association. I am a pork
producer from Nevada, Iowa. I want to thank Chairman Scott and
Ranking Member Neugebauer and their staff for taking a
leadership role and fellow Iowans' Representatives Boswell and
King for bringing attention to the financial struggles of the
pork industry.
The rapid increase and decrease in input costs and farm
gate income has resulted in tremendous stress amongst farmers,
lenders, grain merchandisers, consumers and others. During
2008, our losses were not because of low prices. In fact,
prices received by pork farmers in 2008 were near record. But
our input costs rose substantially. Please keep in mind,
producers' business plans were developed and implemented based
on a historic normal production cost. Now in 2009, our input
costs are down slightly but the market has slumped. The market
drop has been caused by the flu events, lower exports, flat
domestic demand, a drop in the U.S. and world economies, and
last, increase in pork production efficiencies.
For pork producers, financial losses have been staggering.
Since September of 2007, $5.3 billion have been lost and
forecasts show only 4 profitable months between now and the end
of 2010. While owners of the pigs have withstood the largest of
these economic losses, other segments of our industry will also
be impacted, specifically contractual producers, also known as
contract growers. Most economists indicate that we will need to
trim the herd by about nine million market pigs. Assuming a
typical wean-to-finish facility, this means roughly 450 million
spaces of finishing capacity need to be eliminated. On a
typical Iowa farm site of two 1,200 head barns, that equates to
approximately 1,900 fewer pig farms. Iowa alone might stand to
lose 600 to 700 of these pig-finishing farms.
Unfortunately, many of these farms have been built by new,
younger farmers of families trying to bring sons or daughters
back into the farming operation. The next wave of losses will
be from Main Street businesses, fewer equipment companies,
fewer insurance sales and even fewer truckers, in other words,
the ripple effect on Main Street will follow.
We all know there is no simple solution. I have three
suggestions for this Subcommittee to consider. The first is to
continue work on international trade. Much has been done.
However, Congress should approve international trade
agreements, especially the Korean free trade agreement because
it is very valuable to pork sales. The value has been estimated
at $10 per head of pigs produced in the United States. That
would make an important step toward improving the economic
crisis of the pork industry.
Second, pork producers appreciate all the pork purchases
that have been made by the Department using Section 32 funds.
We also appreciate the Members of this Subcommittee and of the
full Agriculture Committee who have recently signed onto a
letter circulated by Representatives King and Walz urging USDA
to make another pork purchase in the immediate future. It would
be a good opportunity for the USDA to purchase an additional
$100 million worth of pork products with Section 32 funds. I
realize there is a spending-cap issue on these funds. I would
encourage this Committee to review this policy in light of the
current conditions.
Last, I ask Members of Congress and the media to be
vigilant about continuing to name the novel H1N1 influenza
virus by the correct name. Our industry has taken on added
economic pain and direct financial losses from the improper
naming of H1N1 flu.
In summary, our farmers have struggled for some time and
the financial outlook in the coming year is somewhat bleak. We
have had tremendous loss of equity, little or no profit for
almost 2 years, but our organization will be continually
working to bring solutions that help bring this industry back
into profitability. We stand ready with this Subcommittee and
other policymakers to find solutions to this financial
situation.
Thank you, and I would be happy to answer any questions.
[The prepared statement of Mr. Moody follows:]
Prepared Statement of David Moody, Chairman and Past President, Public
Policy Committee, Iowa Pork Producers Association, Nevada, IA
Thank you for the invitation to this hearing. My name is David
Moody and I am the Public Policy Chairman and Past President of the
Iowa Pork Producers Association. I am a pork producer from Nevada,
Iowa. I want to thank Chairman Scott, Ranking Member Neugebauer and
their staff for taking a leadership role with other Representatives to
bring attention to the financial struggles of the pork industry.
We've all heard about ``perfect storms''. Most of the agricultural
community and pork producers specifically are in the midst of a perfect
economic storm and many in agriculture are being forced to respond to
issues beyond their control.
The rapid increase and decrease in input costs and farm gate income
has resulted in tremendous stress amongst farmers, lenders, grain
merchandisers, consumers and others. To say the past couple of years
has been a wild rodeo ride in agriculture is an understatement. During
2008 our losses were not because of low prices. In fact prices received
by farmers in 2008 were a near record, but our input costs rose over
20%. Please keep in mind, producer business plans were developed and
implemented based on normal production costs.
Now in 2009, our input costs are down slightly, but the market has
slumped. The market drop has been caused by the April 24th flu event,
lower exports, flat domestic demand, a drop in the U.S. and world
economies, and lastly increased pork production efficiencies.
For pork producers, financial losses have been staggering. The
total equity loss for pork producers since losses began in September
2007 amounts to $5.3 billion. Furthermore, based on recent economic
forecasting, cash hog prices will be below cost of production in all
except 4 months through the end of 2010. That means, on average, pork
producers have lost approximately \2/3\ of their equity since September
2007.
Other Affects:
While the owner of pigs has stood the largest of these economic
losses, other segments of our industry will also be impacted.
Specifically, contractual producers, also known as contract growers
will also be affected. Most economists indicate it will take about a 9%
to 10% drop in hog production to see a return of profitability.
Assuming we need to trim the herd by about nine million market pigs and
assuming typical wean to finish facilities, means that roughly 4.5
million spaces of finishing capacity will also be reduced. That equates
to 3,750 fewer finishing barns needed or about 1,900 fewer pig farms.
Iowa alone might stand to lose 600 to 700 pig finishing farms.
Unfortunately, many of these farms have been built by new younger
farmers of families trying to bring a son or daughter back into the
farming operation.
The next wave of losses will be from main street businesses such as
fewer feed dealers and cooperatives, equipment companies,
veterinarians, insurance sales and even truckers. In other words, the
ripple effect on main street will follow. And this will increase
consolidation and concentration of the pork industry with fewer farmers
raising more pigs.
Potential and/or Partial Solutions:
We all know there is no `simple or perfect solution', but there are
a few things mentioned which could improve the economic situation. I
have three suggestions for this Subcommittee to consider.
First, policy makers and the Administration must continue to
pressure for greater export access to other countries for our
agricultural products. While much has been done, we need to continue to
pressure our trading partners to eliminate non-tariff trade barriers.
Also, Congress should approve international trade agreements,
especially the Korean Free Trade Agreement because it is very valuable
to pork sales. The value has been estimated to be up to $10.00 per head
produced in the United States. That would make an important step
towards improving the economic crisis in pork production.
Second, our producers appreciate all of the pork purchases that
have been made by the Department using Section 32 funds to help get the
surplus product off the marketplace. I appreciate the Secretary's
support on these purchases. I also appreciate the Members of this
Subcommittee and of the full Agriculture Committee who recently signed
on to a letter circulated by Representative King and Representative
Walz urging USDA to make another pork purchase in the immediate future.
It would be a good opportunity for USDA to purchase an additional $100
million worth of pork products with Section 32 funds for various
Federal food programs.
In regards to Section 32 funds, I understand there was a cap placed
in the 2008 Farm Bill to achieve savings for the bill to help get
consensus on the overall price tag. Given the changes in the livestock
sector and other sectors of agriculture who utilize these funds, we
would appreciate it if you and your colleagues on the Agriculture
Committee would reexamine the cap to see if there is anything to be
done in the future to lift the cap or provide more flexibility for USDA
to be able to utilize the Section 32 funds in the coming years.
Last, I ask Members of Congress and the media to be vigilant about
continuing to name the Novel H1N1 Influenza virus by the correct name.
Our industry has taken on added economic pain and direct financial
losses from the improper naming of the H1N1 flu. Back home I hear from
many pork producers about the improper name and it is perceived by them
to be adding insult to financial injury. Ironically, producers are and
should be more concerned about humans giving the virus to our pigs. We
all should be talking about the new human flu virus that may be given
to pigs.
In summary, our farmers have been struggling for some time and the
financial outlook in the coming year looks somewhat bleak. We've had
tremendous loss of equity, little or no profits for almost 2 years, but
our organization will be continually working to bring solutions that
help bring this industry back into profitability. We stand ready with
the Subcommittee and other policy makers to find solutions for this
financial situation.
Thank you.
Mr. Boswell. Well, thank all of you. It has been a great
presentation. I am just curious from anybody or all of you, do
you have anything that you can reflect back on that happened in
the last financial crisis that you did or that we did that
helped recovery in the markets, anything that you can pull back
from that that you can share with us? Anybody?
Mr. Greenwood. Can you repeat the question again? I am
sorry. We couldn't hear you.
Mr. Boswell. Well, I guess what I am saying is, that the
industry, the swine industry in the last financial crisis did
different things, things happened, and as you reviewed that I
am sure many times over, particularly on the academic side,
that maybe there are some things we are overlooking that might
be a lesson learned that we haven't picked up on. Is there such
a thing?
Mr. Butler. Mr. Chairman, I will take a crack at that. I
don't know if it is any one specific action that could be
pointed to except the United States' promotion of international
trade. That has been tremendously helpful to our industry over
the past 15 years. It was not in reaction to that particular
crisis that you alluded to, but the growth in international
markets has been a terrific stimulus to our industry, and we
have seen recently that the closure of those international
markets have a pretty severe impact if and when they occur.
Beyond that, I can't think of a specific action that the
government took in 1998 or 1999 that made any difference.
Mr. Greenwood. I was lending in 1998 and 1999 and I am here
today. I can clearly tell you that what we are going through
today is much more difficult that what we saw in 1998 and 1999.
I think just a couple thoughts, I am not sure if there are
answers for you there. I would say in 1998 and 1999 it was much
more short-lived. It was a shorter period of time and the
market kind of corrected itself. The issue that has been for
the last 2 years is really market volatility with commodity
prices that went up exponentially, and that has caused a great
amount of economic pain. Also back in 2006 we were having some
disease issues. We developed a porcine circovirus vaccine that
had a dramatic improvement on mortality, and from an animal
welfare standpoint, that was absolutely the right thing to do.
But what it did in terms of reducing mortality across the
United States in the operations I worked with was probably
three percent. Well, three percent will equate to about three
to four million extra hogs that ended up hitting the market
from an animal health standpoint. You know, that is what it
did. That was a little bit unprecedented. Also, if we look at
the industry today and back in 1998 and 1999, the producers
that are left, they are committed to the industry. They don't
want to go out of business. It is their livelihood. It is what
they--I mean, family farms across the United States, they don't
want to go out. And back in 1998 and 1999 people probably had a
little more flexibility on what decisions they wanted to make
but the people today, they are really committed to the
industry.
Mr. Boswell. Well, thank you very much. I think in the
interest of time I am going to move on and recognize Mr.
Goodlatte. We have been called for a vote but we have some time
so maybe we can finish this. We will go to Mr. Goodlatte and
then Mr. Moran and then we will see where we are at.
Mr. Goodlatte. Well, thank you, Mr. Chairman. I want to
welcome all the members of the panel. I will move through with
these questions as quickly as I can.
I will start with Mr. Butler. In your view, has mandatory
country-of-origin labeling provided any positive benefits to
U.S. pork producers?
Mr. Butler. The short answer, Congressman, is no. We
believe that country-of-origin labeling has added cost to our
industry and we receive no benefit from it.
Mr. Goodlatte. As you know, legislation has been introduced
in the House that would severely limit the use of antibiotics
in food animal production, and the Administration apparently
without consulting the Department of Agriculture has indicated
their support for that. Would this legislation have an adverse
effect on the profitability of pork producers?
Mr. Butler. Yes, it would. We have heard earlier today
about the Denmark experience. And an across-the-board ban on
the use of animal health products would likely have the exact
opposite of the intent. We believe that it is important to keep
animals healthy as opposed to treating them after they become
ill. So some people who are proposing a ban on animal health
products for whatever set of reasons are wrongheaded about
that.
Mr. Goodlatte. Well, I agree and I really appreciated the
piece that the Chairman introduced regarding what has happened
in Denmark where they ostensibly have a ban on the use of it.
They are using even more of it and I suspect it is because they
have to contain these problems that they don't keep under
control in the first place.
Mr. Greenwood, under existing conditions, does your
institution find independent or contract growers to be
preferable borrowers?
Mr. Greenwood. I think the best way for me to answer that
question is, we work with producers of all types. To give you
an example, we have big owners that own the pigs and they might
own a facility, but then they work with other independent
producers that help raise those pigs. From a production
standpoint, and I call it producers really working together,
that system has worked very, very well for this industry. The
issue is now, I call it the cause and effect when you have a
pig owner that is struggling financially and all the
ramifications that it has with other independent producers that
have a direct linkage. They might not own the livestock but
they are raising that livestock. It puts all those loans at
risk that we are working with today, because many of those pig
owners have multiple contract growers that are also, probably,
our clients of our association and it puts everything at risk.
Mr. Goodlatte. Thank you.
Mr. Brenneman, since your company exports a greater
proportion of its products than the U.S. pork industry does,
you must be even more sensitive to trade policy. In your view,
what effect has the recent decision to impose tariffs on
Chinese-made tires had on our prospects to improve pork exports
to that nation?
Mr. Brenneman. Yes, you are right. We are very dependent or
more dependent on the export markets than maybe the industry on
average is. I will tell you any kind of trade barriers that are
put up, and I think that is a good example of one that has been
placed recently, it is problematic. Every time the Chinese
refer to the poultry issue that is getting resolved, that is
something they point to as a reason why they are not opening
back up due to H1N1, and I think that is just an excuse. I
think they are looking at any types of trade barriers we are
putting up and using those as reasons not to open trade back up
for pork products.
Mr. Goodlatte. Thank you. And your testimony discusses the
adverse effect of government policies on the costs of feed and
energy. Roughly what portion of the cost of raising hogs is
feed and what portion of the cost of processing, refrigerating
and transporting pork products is energy?
Mr. Brenneman. That is a very good question. The feed side
is easy. It is roughly 65 percent of the cost of raising a hog
is feed. On the energy side, that is a little more difficult.
If you look just at the processing part of it, the energy used
in just the processing plant for refrigeration and everything
else is roughly seven to eight percent. If you add in all the
transportation costs, that number would go up higher, closer to
probably 15 to 20 percent. The energy portion of that is hard
to----
Mr. Goodlatte. Mr. Chairman, my time is just about expired.
I have other questions. Perhaps we could submit them and ask
for answers in writing. I have some for Dr. Buhr and Mr. Moody
that I would love to have them answer if time would permit.
Mr. Boswell. We can do that.
Mr. Moran.
Mr. Moran. Mr. Chairman, thank you to you and Mr. Goodlatte
for allowing me to join you here today. I feel badly intruding
upon your time, although I have been told that this first vote
is being held open for up to 30 minutes for an Afghan briefing,
and we will not have that vote until that briefing is
concluded, so perhaps we have a bit more time than what we are
aware of.
Mr. Boswell. We will check that out.
Mr. Moran. Thank you, Mr. Chairman.
I am pleased to be with you and this is an important issue
in Kansas and the country and agriculture, and I welcome the
panel. I appreciate having the opportunity to have heard all of
their testimony, and I especially welcome Mr. Brenneman from
Seaboard Foods. I smile as I want to compliment Seaboard Foods
as a Kansas company. No one would think a company called
Seaboard would be located in Kansas, but we are delighted that
you are. You are an important component of our economy and have
made significant improvements in the economy in the
Congressional district that I represent.
Mr. Brenneman. Thank you.
Mr. Moran. It is a pleasure to have the opportunity to ask
these questions, although I am sorry the circumstances are so
difficult for our pork producers. I want to follow up on a
statistic that I saw recently, and perhaps this is for the
active addition doctor. Retail pork prices, according to USDA,
in the third quarter fell as compared to the third quarter of
last year, 1 year comparison, fell 2.33 percent while pork
prices paid to the farmer fell 31.68 percent. And I am not a
conspiracy guy particularly, but what is the explanation for
that, what seems to me to be a very dramatic difference in the
reduction of prices between the retail and the wholesale
sector?
Dr. Buhr. Well, to stay with economics for a minute, one of
the technical issues is, there are some concerns about USDA's
reporting of retail prices. For example, they don't adequately
include featuring and coupon values that happen in retail so
that actual retail price that the consumers pays is often quite
different than that price decline as just as a technical
matter. But beyond that, we do tend to see it economically
change in the farm price, given a change in production, changes
much more dramatically than do retail prices. Retail prices
just tend to be stickier and they take a longer time to move
into that supply chain. So some of those quick time changes
like that and changes in production could affect that
difference as well.
Mr. Moran. What that suggests is that the elasticity, the
relationship between price and demand and price and supply are
significantly different at the retail and the wholesale level?
Dr. Buhr. Right. The farm level tends to be the most
elastic response.
Mr. Moran. And are those numbers any different than any
other sector of the livestock side of beef prices or chicken
prices, poultry prices? Is there a difference between these?
Dr. Buhr. There is a difference, but for the most part that
is relatively consistent, that you do see retail prices change
less than you do farm prices. Farm prices do tend to change
more whether it is beef, pork or poultry.
Mr. Moran. So no particular policy suggestion or
recommendation related just to that fact other than you would
suggest that USDA needs to change their calculation of price?
Dr. Buhr. I haven't thought about that much quite honestly
and I am not sure where you are driving. I have a sense you are
going somewhere with that. But, there are questions, of course,
with margins and concentration of the industry, branding,
promotion issues and so on out there in industry. My take on
that, I look a good deal at antitrust issues and these
competition issues that people looked at, and there is very
little evidence to support noncompetitive pricing practices in
the pork industry, and changes to competition policies would
very likely adversely affect the pork industry from the ability
to execute things like vertical integration, coordination and
pricing. So from that perspective, that may be where the
concern is coming from. I do tend to chalk these changes up to
what I was talking about, the normal price responsiveness of
the pork industry between farm level, wholesale level and
retail level.
Mr. Moran. I was not taking that any other place than the
normal question that I, as a Member of Congress, have: what can
I do? I think what you are telling me is, the market is at work
here and it is doing its function.
Dr. Buhr. Right.
Mr. Moran. Thank you.
Mr. Brenneman, you indicated in your testimony that
government should not approach this problem by promoting
subsidies to producers as the industry must ``right size and
the markets will respond and this will occur.'' I think often
we have the suggestion that government needs to do something.
Subsidies are often one of the first suggestions. I wanted to
give you the opportunity to expand upon your thoughts about why
we should not do that.
Mr. Brenneman. Thank you. Yes, and my concern is, that what
we would see as a solution would be many of the comments made
here in terms of focusing on the demand side and opening up new
markets, reopening markets that were open and are now closed
and continuing to enhance demand. What our fear is, and I will
speak from Seaboard's standpoint, would be subsidies that
continue to promote more and more production, we have mentioned
that there is a supply problem and we need to get supply down
and demand back into equilibrium, if you will, to get prices to
where they can be sustainable for producers in the long term,
and that was the essence of my comments. If subsidies are a way
of dragging out and continuing to keep supply at too high a
levels in relation to the demand, then that will be problematic
for us and it will drag on this challenge for producers for a
long, long time.
Mr. Moran. And my impression is that the witnesses, all of
you are in general agreement. Mr. Butler, I assume that is the
case for the pork producers?
Mr. Butler. It is, yes, sir.
Mr. Moran. Thank you, Mr. Chairman.
Mr. Boswell. Well, thank you, and thank all of you, and I
see that Audrey is in the audience so we are going to have some
questions submitted, Mr. Goodlatte will do that. And there is a
vote going on. We can't confirm that it is going to be delayed
so we will probably not--unless I'm getting ready to get some
information here. I think that since we can't confirm that,
rather than hold you here for a couple hours and then
reconvene, we will submit those questions, unless some of you
object to that. No objections, I see. Well, we can't thank you
enough for your coming and sharing your expertise, and we have
heard clearly that we want the Department to continue their
purchases. We have heard clearly that we need to advance trade.
I know that Mr. Goodlatte and some of the rest of us were in
Korea last December and we certainly discussed this on the beef
side, but we also had discussions on the pork side, be assured
of that. So we hope we can move forward on that. Those of us
that are producers, quite a few of us are on this panel, on
this full Committee, we understand the pain, and we won't stop
and we will do anything we possibly can that is reasonable to
do. So thank you again for coming and being with us. We
appreciate it very much.
Under the rules of the Committee, the record of today's
hearing will remain open for 10 calendar days to receive
additional material and supplementary written responses from
the witnesses to any questions posed by a Member of the panel.
The hearing of the Subcommittee on Livestock, Dairy, and
Poultry is now adjourned.
[Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Submitted Article by Hon. Leonard L. Boswell, a Representative in
Congress from Iowa
Informa Economics Policy Report
dated October 16, 2009
Miscellaneous . . .
Suspicious Rise in Danish Use of Pig Antibiotics
Use of antibiotics in Danish pig production increased by 19 percent
between 2001 and 2008, a report has shown, despite the fact that Danish
law forbids the use of antibiotics for routine treatment of livestock.
The ban on routine administration of antibiotics is intended to
protect against the risk of antibiotic resistance in bacteria that can
infect both animals and humans, which is potentially life-threatening.
However, the recent Danmap (Danish integrated antimicrobial
resistance monitoring and research program) report for 2008 showed that
antibiotic use in pig production had gone up by 19 percent in 2001-
2008, measured in daily pig doses per kilogram of pork.
The findings were reported in the bimonthly Maskinbladet under the
headline: ``Indications of routine treatment with antibiotics.''
According to the article, the increase relates primarily to the use of
tetracyclines, which rose by 118 percent and 60 percent respectively in
weaned and finishing pigs in the period 2003-2008.
______
Submitted Questions
Response by Michael T. Scuse, Deputy Under Secretary, Farm and Foreign
Agricultural Services, U.S. Department of Agriculture
Question Submitted by Hon. Collin C. Peterson, a Representative in
Congress from Minnesota
Question. In your testimony, you discussed two risk management
programs available to swine producers: Livestock Gross Margin and
Livestock Risk Protection. Also according to your testimony, the
programs have low participation rates among swine producers. Under
section 523(b)(10) of the Federal Crop Insurance Act (7 U.S.C.
1523(b)(10)), it appears that the cost of conducting these programs is
capped at $20 million for each fiscal year. Does this account for the
low participation rates? How much of the $20 million available for FY
2009 was unused?
Answer. You are correct that section 523(b)(10) of the Federal Crop
Insurance Act (7 U.S.C. 1523(b)(10)) authorizes, on a yearly basis, $20
million to pay the expenses of the Federal Crop Insurance Corporation
(FCIC) to conduct two or more livestock insurance pilots. These
expenses include administrative and operating subsidy to approved
insurance providers to administer the plans, and producer subsidy. For
Fiscal Year 2009, approximately $1.5 million was expended. Therefore,
the limitation on the amount to be expended has not had any impact on
participation.
With regard to the livestock pilot programs, RMA contracted for an
evaluation of the livestock products in 2007 requesting that the
contractor specifically review the reasons for low participation in the
livestock plans of insurance. The evaluation cited several reasons for
the low participation rates and commented that these low participation
rates are unlikely to change. Some of the reasons for low
participation: (1) Agents used to selling crop insurance are unfamiliar
with a financial based product like the livestock products; (2) The
cost of the LRP insurance program was higher than the comparable
options contracts; (3) The complexity of the LGM plan has made it
difficult for agents to understand and market the product; (4) The
perception, following RMA pulling the product in response to the first
Bovine spongiform encephalopathy identification is that the product may
be pulled from the market at any time; and (5) The limited sales
period. Because these are derivatives of exchange traded contracts, the
sale of the livestock products occurs after the commodity markets are
closed.
With regard to the unfamiliarity and complexity of the products,
several targeted training initiatives have taken place to assure a
better understanding by producers and those involved in the sales and
service of the Livestock insurance products.
Questions Submitted by Hon. Frank D. Lucas, a Representative in
Congress from Oklahoma
Question 1. China had been a growing market for pork, buying $268
million in 2008, $147 million in 2007, and $55 million in 2006. This
year exports to China are off $200 million over the same period last
year. Recently, the Obama Administration placed a 35 percent tariff on
tires imported from China, which can only further dampen hopes for
improvement. Did the Department of Agriculture participate in that
decision?
Answer. Yes, as an active member of the Administration's formal
interagency trade policy process (Trade Policy Staff Committee (TPSC)),
USDA participated with other agencies in discussing options for this
policy area. In that process, trade ramifications were among the
concerns discussed.
Question 2. Recently, your Administration testified before the
House Rules Committee in favor of H.R. 1549, which would severely
restrict the use of antibiotics in food animal production. Did the
Department of Agriculture have any input into that position? Has the
Department done any economic analysis of the adverse economic impact on
pork producers of this legislation?
Answer. The Administration has not taken a position on H.R. 1549.
USDA is working collaboratively with FDA on the issue of
antibiotics. Antimicrobial drugs are critical agents for treating
infectious disease both in humans and animals. We know that many
livestock producers use antibiotics judiciously and want to preserve
the effectiveness of these important drugs. We also know that
antibiotic resistance is real and is a public health concern. The issue
of antibiotic resistance requires close collaboration between Federal
agencies, Congress, state health departments, and the agricultural
community. We look forward to working closely with Congress on this
issue in the future.
USDA's Economic Research Service has analyzed evidence on the
extent of antibiotic use in U.S. hog production, alternatives to
growth-promoting antibiotics, the farm-level effects of restriction on
use, and the likely farm-level costs and consumer responses to a
restriction.
Question 3. Observers have offered that a Free Trade Agreement with
Korea would expand markets for pork producers and benefit them $10 per
head. What priority is the Obama Administration placing on this FTA and
FTAs with Columbia and Panama?
Answer. As President Obama stated after his recent summit meeting
with President Lee, the Administration is committed to working together
to move the KORUS FTA forward. This will involve working through a
number of outstanding issues, including on autos, beef and non-tariff
measures. The Administration is consulting with stakeholders and
working to identify the most effective approaches for dealing with
these concerns and those outstanding with the other pending FTAs.
Successfully addressing these concerns will be an important step in
determining when, in close consultation with the Congress and as part
of the President's broader trade policy framework, these agreements
should be considered by the Congress.
Question 4. I understand that the USDA has announced they will work
with the U.S. Department of Justice on a series of workshops next year
that will examine competition issues in the livestock industry. I think
my colleagues would agree that while the livestock sector is
struggling, it might not be the best time for the government to tinker
with industry structure. Could you take a few minutes to outline the
process the Secretary intends to follow and what outcomes do you
anticipate with this effort?
Answer. USDA and the Department of Justice plan to hold workshops
to explore competition issues affecting the agricultural sector and the
appropriate role for antitrust and regulatory enforcement. On November
13, USDA and the Department of Justice announced the schedule of
workshops as follows: March 12 in Ankeny, Iowa to discuss general
producer issues, including seed technology, vertical integration,
market transparency and buyer power; May 21, 2010 in Normal, Alabama to
discuss concentration and buyer power in the poultry industry; June 7,
2010 in Madison, Wisconsin to discuss concentration and vertical
integration in the dairy industry; August 26, 2010 in Fort Collins,
Colorado to discuss concentration in the livestock industry; and
December 8, 2010 in Washington, D.C., to discuss price discrepancies
between prices received by farmers and the prices paid by consumers. We
do not have specific outcomes for these workshops at this time. We are
interested in engaging in a dialogue among interested parties and
foster learning with respect to the appropriate legal and economic
analysis of these issues as well as to listen and to learn from parties
with real-world experience in the agricultural sector.
Question 5. In these troubled economic conditions for the pork
industry, who is generally fairing better, independent producers or
producers who have aligned with packers?
Answer. We have no information about how well independent producers
are currently fairing versus producers who are aligned with packers.
However, based on 2008 data from USDA's Agricultural Resources
Management Survey, the financial performance of hog farmers with
production or marketing contracts tended to fair better, on average,
than the performance of independent producers.
Question 6. The Administration was a very strong advocate of cap-
and-trade legislation earlier this year. Has the Department conducted
an analysis of this legislation regarding the economic impact
specifically on pork producers? Is there anything in the House bill
that will help pork producers with their current economic problems?
Answer. On July 22, the Department published a report, ``A
Preliminary Analysis of the Effects of H.R. 2454 on U.S. Agriculture''
detailing the projected effects of the Waxman-Markey bill on U.S.
agriculture. (http://www.usda.gov/oce/newsroom/archives/releases/
2009files/HR2454.pdf). Because of provisions in H.R. 2454 that reduce
the impact of the bill on fertilizer costs, the short-run (i.e., 2012-
2018) costs are estimated to be small and largely covered by offset
markets. Over the medium and long terms, costs increase but it is
estimated that the benefits to agriculture from offsets will increase
more.
In 2005, greenhouse gas (GHG) emissions from U.S. livestock
operations totaled 258.6 Tg CO2. Hog production accounted
for 21.0 Tg CO2 eq., or 8.1 percent of all livestock related
emissions. Waste management accounted for 91.1 percent of all GHG
emissions related to hog production--this included methane emissions of
18.65 Tg CO2 eq. and nitrous oxide emissions of 0.48 Tg
CO2 eq. Methane emissions from enteric fermentation
accounted for the balance of GHG emissions from hog production (or 1.92
Tg CO2 eq.). Given these sources, the major opportunities to
reduce GHG emissions from hog operations will lie in changes in waste
management systems. Covering open storage facilities (such as pits,
ponds, and lagoons) and flaring the methane gas, switching to daily
spread systems, and installing anaerobic digesters all offer potential
opportunities for particular hog production facilities to significantly
reduce their GHG emissions. Anaerobic digesters also have a number of
other benefits that include reductions in odor, generation of
electricity and heat for on-farm use, and (in some cases) bedding
material. H.R. 2454 does not identify the set of agricultural practices
that would be eligible to supply offsets but does stress the importance
of any such offsets to be real, permanent, additional, and verifiable.
In general, meeting these criteria are relatively straight forward for
emissions reductions associated with changes in waste management
systems.
Question 7. It is my understanding that the Administration has the
statutory authority to suspend or alter the Renewable Fuels Standards
in the event it creates adverse economic conditions? Has the
Administration conducted any analysis about how such a decision could
provide relief to the livestock sector generally or for pork producers
specifically?
Answer. The Renewable Fuel Standard (RFS) program, which requires
the use of renewable fuels in the U.S. transportation sector, was
originally adopted by Congress in the Energy Policy Act of 2005. This
program was modified by Congress in the Energy Independence and
Security Act of 2007 (EISA). The RFS program provides that the
Administrator of the Environmental Protection Agency (EPA), in
consultation with the Secretaries of Agriculture and Energy, may waive
the national renewable fuel volume requirements, in whole or in part,
if the Administrator determines that implementation of the requirement
would severely harm the economy or environment of a state, region, or
the United States (see Clean Air Act section 211(o)(7)(A)).
On April 25, 2008, the Governor of the State of Texas requested a
fifty percent waiver of the national volume requirements under the RFS
mandate for the time period from September 1, 2008 through August 31,
2009. Texas based its request on the assertion that the RFS mandate is
unnecessarily having a negative impact on the economy of Texas,
specifically, that increased ethanol production is contributing to
increased corn prices which are negatively affecting its livestock
industry and food prices. EPA published in the Federal Register a
notice of receipt of this request and invited public comment on all
issues relevant to making a decision.
On August 13, 2008, EPA published in the Federal Register a Notice
of Decision on the State of Texas request for a waiver of a portion of
the RFS. In that Notice, EPA stated that, ``[B]based on a thorough
review of the record in this case, EPA finds that the evidence does not
support a determination that implementation of the RFS mandate during
the time period at issue would severely harm the economy of a state, a
region, or the United States. EPA is therefore denying the request for
a waiver.''
In reaching its decision, EPA evaluated the information submitted
by the State of Texas and other commenters, and, in addition, EPA
conducted its own analysis. In consultation with the U.S. Department of
Agriculture and the U.S. Department of Energy, EPA reviewed several
economic models and chose a model created by researchers at Iowa State
University (ISU model) to analyze the impact of the RFS on corn,
ethanol, and gasoline prices based on uncertainty in key variables such
as crop yields and crude oil prices. For additional information
regarding EPA's decision, see the following website: http://
www.epa.gov/fedrgstr/EPA-AIR/2008/August/Day-13/a18738.htm. I am not
aware of any more recent analysis that the Administration has conducted
on suspending or altering the RFS and the potential impacts on
livestock producers.
Questions Submitted by Hon. Steve King, a Representative in Congress
from Iowa
Question 1. Could you please confirm or deny the information
alleging that an Administration request for salary and benefits
compensation data for the executives of meat processors or suppliers as
a condition for consideration of bids to supply sow meat to the USDA?
Answer. For all recent cooked pork patty invitations to bid issued
by USDA, offers from eligible contractors have been received that far
exceed the amount needed to fill the contract demand. USDA is not
imposing and does not plan to impose salary disclosure requirements on
contractors or potential contractors for any of its purchases under the
current funding authorizations, see section 1512 of ARRA and Federal
Acquisition Regulation 52.204-11. That being said, USDA recently
purchased pork products using funds authorized by the American Recovery
and Reinvestment Act (ARRA) that required salary disclosure for a
contractor under specific conditions. However, none of the firms
awarded USDA pork product contracts using ARRA funds met the threshold
requirements for salary disclosure.
Question 2. Does the USDA have the authority to require this
information as a condition for considering bids? If so, please cite the
statute, rule, constitutional provision(s), or precedents that you
believe grant the basis for such a request.
Answer. See answer to Question 1 above.
Question 3. If this is your practice, how long has it been in
effect and why was it implemented?
Answer. See answer to Question 1 above.
Question 4. Please attach the current USDA application requirements
for the suppliers of sow meat and note any changes in requirements that
have been implemented within the last year.
Answer. See attachment that follows.
Question 5. In addition, please attach a report of USDA sow meat
purchases within the last year, by month of purchase.
Answer. In the past fiscal year, AMS has purchased approximately
12.2 million pounds of finished products produced from sow meat at a
cost of $22.1 million. This was one purchase in September 2009.
Attachments
Question. In your prepared testimony, you discuss how current
economic conditions will lead to contraction in the national herd.
There has been some talk advocating a specific policy to reduce the
number of sows in the United States--but not much in the way of details
have been mentioned. Do you have any thoughts on this idea?
Answer. While the pork industry has been losing money for 2 years,
most of the loss has been caused by things outside the producer's
control. In 2008 the industry received nearly record income for our
pigs but had extremely high input costs, mostly due to high feed costs.
Since the April 24, 2009 flu event and the economic recession, the
demand for pork has dropped world wide. This had brought the pork price
down because of supply and demand factors.
However it has been a shorter time period of the reduced market
price, which would indicate we need to reduce the sow herd. Most
producers would like the market to dictate the herd size not a new
government program. This thought was supported by Iowa Pork Producers
Association's annual member survey. We had a question asking if
producers would support a specific program to help with prices by
reducing the sow herd with a government program and the answer was
overwhelmingly `no'.
Producers would much prefer that the government use existing
government programs to purchase pork products for food programs. This
could include purchases of sow meat, which would be cheaper and
incentivize market driven herd reductions. The other item Congress and
the Administration could do is continue work on trading with other
countries and passing free trade agreements. Thank You.
Response by Mark Greenwood, Vice President, Agri Business Capital,
AgStar Financial Services&*
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*&There was no response from the witnesses by the time this hearing
went to press.
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Questions Submitted by Hon. Frank D. Lucas, a Representative in
Congress from Oklahoma
Question 1. Under existing conditions, does your institution find
independent or contract growers to be preferable borrowers?
Question 2. In your testimony you call for higher FSA loan limits.
Could you expand on the specifics of that? Where are we now? Where
should we move to? What discretion does the Department of Agriculture
have in that area?
Response by Brian Buhr, Ph.D., Professor, Head and E. Fred Koller Chair
in Applied Economics, University of Minnesota&*
Questions Submitted by Hon. Frank D. Lucas, a Representative in
Congress from Oklahoma
Question 1. Would it be fair to summarize your testimony by saying
that individual producers were making the right decisions with respect
to market signals, but that those market signals turned out to be
wrong? Do you have any suggestions how they might prevent this from
happening again?
Question 2. During discussions of the current economic crisis for
the pork sector, we frequently hear the term ``hog cycle''. Could you
take a few minutes to explain the context of this term and offer some
observations about how it relates to today's situation?