USDA's Sept. 1, Hogs and Pigs Report begs the question: Why aren't producers expanding?
Of course, the answer is complicated and perhaps even elusive.
"As of today, the typical pork producer has had 20 consecutive months of profit," notes Ron Plain, University of Missouri agricultural economist. "The last time we saw this stretch of profitability was 1990/91, and we ended up with a 7 percent slaughter increase in 1992. Looks like we're not going to have anything like that next year."
Now, there have been reports of new buildings going up in Iowa and the upper Corn Belt. Iowa alone reports a record number of permits granted. "One thing we have to be careful about," says Steve Meyer, Paragon Economics, "is that the rule system in Iowa changed. The fact that we have more permits might not mean that we're building more buildings; it might just mean that more are subject ot permitting."
Plain points out that there are new buildings being built, but that they're primarily finishing barns. "Finishing barns don't create new pigs, you need sow units for that."
Darrell Mark, University of Nebraska ag economist, says it's likely that some of the building is to replace old facilities. Adding to the reasons why there isn't more expansion underway, Mark says he's finding that producers memories of 1998's record low prices are still vivid. Also, zoning and other permiting issues are limiting the pace to which expansion can occur.
It's possible that USDA may not be picking up expansion, says Robin Fuller, Tallgrass Consulting. Because new buildings are still being built and others don't have pigs in them yet, USDA may not have them in its reporting matrix. "It could be 9 months before we see actually see the expansion," she notes.
Finally, Plain points out that historically profit periods have been due to a reduction in hog numbers. "This time the price strength has been demand driven, so there's not excess room in facilities to be restocked," he says. "For expansion we'll need to pour new concrete."