Purdue News
Purdue News
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July 9, 1999
Lenders to call on hog farmers ahead of scheduleWEST LAFAYETTE, Ind. -- A recent government report revealing a U.S. hog supply that continues to exceed demand is confounding hog producers and putting their lenders on alert, according to a Purdue University agricultural economist."The lending community won't wait until the typical post-harvest loan-renewal season to address this situation with producers," said Mike Boehlje, a Purdue Cooperative Extension Service specialist in financial strategy. "Lenders are now reassessing their pork producers' credits and figuring their debt-carrying capacities." The recent Hogs and Pigs report from the U.S. Department of Agriculture showed that liquidation had reduced the market-herd glut by only 2 percent and the breeding herd by 6 percent. Those numbers caused economists to abandon their prediction of a much-anticipated upturn in prices. Continued low prices are likely to devastate hog operations, because producers only recently saw prices climb back to break-even after stagnating at levels below the cost of production. "The June report was a shocker," said Purdue agricultural economist Chris Hurt. "Pork supplies are expected to be down a meager 2 percent during the next 12 months, not nearly enough to spur higher prices." Hurt said prices will be about $30 to $36 per hundredweight during the coming year, rather than the $40s most industry experts were predicting. The average cost of production is about $35 per hundredweight. According to Boehlje, lenders already are reviewing credit files to see which borrowers may run into trouble making loan payments. "Those producers who have a lower debt load and haven't expanded at a rate greater than they could support with retained earnings will face less financial pressure from their lenders," he said. "Once vulnerable farmers are identified, reamortization, or rescheduling of debt service, will be the first option considered, but this works only when a good jump in market prices is expected." Also, because many hog producers already may have reamortized loans during the price crunch of the past year, Boehlje conceded they may no longer have that option. "If that's not possible, what that leaves is downsizing, selling assets, or tapping outside income or assets," Boehlje said. "These are not options that many want to think about, but they are the options they may have to face." Hurt agrees: "Some of these producers have been forced to increase their debt load over the last year in order to meet cash-flow needs. The outlook for these producers is devastating as the industry must now go through further erosion of net worth and reductions in asset values. "Too many pork producers will say, 'We could go through one disastrous price period, but we can't take two.' The tragic news from the June Hogs and Pigs report is that the second wave is on its way."
Sources: Mike Boehlje, (765) 494-4222, boehlje@agecon.purdue.edu Chris Hurt, (765) 494-4273, hurt@agecon.purdue.edu Writer: Amy H. Raley, (765) 494-6682, ahr@aes.purdue.edu
Purdue News Service: (765) 494-2096; purduenews@purdue.edu
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