How big are these losses across the industry? During the last six months total losses are estimated to have been about one billion dollars. Losses in the next six months are forecast at around two billion additional dollars, meaning that the amount of equity erosion which has occurred in the last six months is expected to double in the next six months. For any hog production operations that are in a weak financial situation at this point, lenders and other creditors will be key to their ability to continue. In September, two large Canadian hog firms filed for receivership and bankruptcy.

Creditors also need to look at the longer-term outlook when making their decisions to continue to finance individual pork operations. By spring, hog production is expected to return to breakeven with the start of some moderation in feed costs due to lower soybean meal prices. Corn prices are expected to begin to move lower in the late summer of 2013 if more normal yield outcomes are developing for the 2013 corn crop. Currently the outlook for the last three quarters of 2013 is indicating a small positive return of two dollars per head. While that would not allow much equity building, it would end the equity erosion.

What can producers do now? They need to work with their creditors to secure a path through the next six months. Overall, some additional reduction in the breeding herd is needed and is likely. Producers can also sell at the lightest weights possible to avoid any underweight discounts. However, the decision on weights depends on the economics of each producer, so each needs to do their own analysis. Also producers are looking for all alternative feed nutrient supplies including discounted aflatoxin corn that has contamination levels approved by FDA.

The financial storm is upon the industry and everyone is looking forward to the day when the sunshine returns after the storm, as it always does.