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 Souder spent $850,000 last year to build a wean-to-finish barn,
which can house nearly 2,500 animals at a time. He is not alone.
Since 2013, Iowa farmers have filed nearly 700 construction
applications for new or expanded hog buildings, a six-fold increase
from five years earlier, records show. Minnesota, Missouri, Illinois
and other states are seeing a similar surge, said state agriculture
officials.
But farmers are finding that their gleaming new barns have had an
unintended consequence, contributing to a glut of hogs that has sent
pork prices to their lowest levels in years.
Hog futures prices hit a four-year low this past week. A strong
dollar has made U.S. pork more costly than meat from competing
countries, which has led to a slowdown in exports, especially to
China. And cargo slow-downs due to a labor dispute at West Coast
ports has left stocks of pork products piling up.
Pork prices followed beef prices to record high levels last year, as
the cattle herd shrank and a swine virus diminished the U.S. hog
herd. Pork prices have since fallen, but U.S. consumers that had
switched to chicken are not yet returning to "the other white meat,"
say retail food analysts.
 Boneless pork loin prices have fallen more than 15 percent at
retailers in the past two months alone, and the U.S. Department of
Agriculture last month predicted U.S. hog prices will drop 17.5
percent overall this year.
"Now that pork prices are collapsing, this could make pork more
competitive," said Jared Koerten, senior foods analyst with research
firm Euromonitor International. "The question is, will switch back
from chicken to pork?"
CONSTRUCTION CRAZE
The hog barn boom in rural America began as meat packers like Tyson
Foods Inc, Seaboard Foods, JBS USA and Cargill Inc pushed farmers to
rebuild quickly after the deadly Porcine Epidemic Diarrhea virus
killed an estimated 8.5 million piglets in 27 states.
The building boom has facilitated a surge in the U.S. hog and pig
herd, which has rebounded from an eight-year low of 65.1 million
this past September, to 66.1 million as of December, according to
Agriculture Department data. The agency expects pork production to
increase by 4.6 percent in 2015 over 2014.
Pig farmers, meanwhile, could be facing declining margins and rising
debt payments in the years to come.
"When times get tough, and they will in the next two or three years,
that's when you'll see some of the farmers be tested," said Will
Sawyer, a protein analyst with Rabobank.
The supply and pricing volatility are raising questions, too, about
Tyson Foods' move last year to acquire Hillshire Brands. Caught in a
bidding competition with rival Pilgrim's Pride, Tyson paid $8.55
billion, or nearly 17 times Hillshire's earnings before interest,
tax, depreciation and amortization. In the food sector, companies
typically sell for between 10 and 15 times EBITDA, said Brian
Weddington, a vice president of Moody's Investors Service's
corporate finance group.
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Industry analysts warn the $5.75 billion Tyson borrowed to partially
fund the deal could weigh heavily on Tyson if margins in the pork
sector remain too low.
In response to analyst questions about the deal during an earnings
call late last month, Tyson Chief Executive Donnie Smith said the
higher hog supply and lowering prices should help margins,
particularly in its prepared-foods business, which grew enormously
with the Hillshire acquisition.
EXPORT SQUEEZE
The fall in U.S. pork prices is occurring amidst an unexpectedly
sharp fall in demand from China, a large U.S. export market. U.S.
pork exports to China in 2014 were down 34 percent from a year
earlier, as high U.S. prices sent Chinese buyers to lower-priced
suppliers from Europe.
Many meat packers also curtailed their pork exports to China because
of the livestock drug ractopamine, a growth stimulant U.S. hog
farmers use to add animal weight before slaughter. China bars
shipments from at least 25 U.S. pork plants over ractopamine issues,
said Joel Haggard, Asia Pacific director of the U.S. Meat Export
Federation. The list includes some of the largest U.S.
slaughterhouses.
Domestic Chinese factors also are at play. The country's economic
slowdown has contributed to a 9 percent decrease in demand for pork,
according to swine-industry research firm Soozhu.com. Meanwhile,
Chinese hog production is on the rise, with 735 million pigs raised
for slaughter, up 2.7 percent over 2013, according to Feng Yonghui,
general manager at Soozhu.com.
There are signs the Chinese hog boom may have overheated, with
producers losing money for 13 months in a row, Feng said. "Long-term
losses are leading to many farmers going bankrupt," Feng said.
In the U.S., farmers like Souder are still hoping for the best. "I
have faith this will be a good for our family and our farm," he
Souder. "We have six to seven years to pay everything off."
(Reporting By P.J. Huffstutter in Iowa and Chicago Additional
reporting by Dominique Patton in Beijing; Editing by David Greising
and Sue Horton)
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