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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 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

BRAD ELLSWORTH, Indiana 

TIMOTHY J. WALZ, Minnesota 

STEVE KAGEN, Wisconsin 

KURT SCHRADER, Oregon 

DEBORAH L. HALVORSON, Illinois 

KATHLEEN A. DAHLKEMPER, 

Pennsylvania 

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 

FRANK D. LUCAS, Oklahoma, Ranking 

Minority Member 

BOB GOODLATTE, Virginia 

JERRY MORAN, Kansas 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

ROBERT E. LATTA, Ohio 

DAVID P. ROE, Tennessee 

BLAINE LUETKEMEYER, Missouri 

GLENN THOMPSON, Pennsylvania 

BILL CASSIDY, Louisiana 

CYNTHIA M. LUMMIS, Wyoming 

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 

STEVE KAGEN, Wisconsin 

FRANK KRATOVIL, JR., Maryland 

TIM HOLDEN, Pennsylvania 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

BETSY MARKEY, Colorado 

SCOTT MURPHY, New York 

WALT MINNICK, Idaho 

RANDY NEUGEBAUER, Texas, Ranking 

Minority Member 

BOB GOODLATTE, Virginia 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

K. MICHAEL CONAWAY, Texas 

ADRIAN SMITH, Nebraska 

DAVID P. ROE, Tennessee 

CHANDLER GOULE, Subcommittee Staff Director 

(II) 

(III)

C O N T E N T S 

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

(1)

HEARING TO REVIEW THE ECONOMIC 

CONDITIONS FACING THE PORK INDUSTRY 

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 

2

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. 

3

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 repVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
4

resent 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. 

5

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 perVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
6

cent 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 

7

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 

8

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.

The third factor contributing to recent losses in the hog sector has been the increase in feed prices starting in the fall of 2006. Increased feed costs pushed total 

production costs up from $110.43 per hog marketed in Oct. 2006 to the $130 level 

by June 2007, where they remained steady for a few months. Feed prices then 

began increasing again in fall 2007, with total production costs per hog marketed 

peaking at $163.79 in August 2008 before gradually declining to the $140 level, 

roughly where they have remained since August. 


11133001
9

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 

10

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. 

11

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 Sep- tember 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. 

12

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? 

13

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 

14

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. 

15

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 proVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00019 Fmt 6633 Sfmt 6601 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
16

grams 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 

17

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. 

18

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. 

19

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 

20

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 

21

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 recVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
22

ognized 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 proVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
23

ducers. 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 nearVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
24

ly $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 breakeven 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 

25

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 wellbeing 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. 

26

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¢ a pound to produce a live hog in the United States compared with 84¢ 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 

27

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 midAtlantic (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 bilVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
28

lion 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¢ 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¢ 

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. 

29

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 cornethanol 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. 

30

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

Source: USDA, Agricultural Marketing Service. 


11133002
31

Figure 2

Oil and Corn Prices Link

Figure 3

Actual & Predicted Hog Production Costs *

* Based on relationship between ISU Estimated Costs & Returns data and 

historic Omaha corn and Decatur soybean meal prices.


11133003 11133004
32

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 rep- resents $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 

33

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 curVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
34

rent 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. 

35

I thank you for holding this important hearing today, and I am glad to answer 

any questions that you may have for me.

36

ATTACHMENT


11133005 11133006
37


11133007 11133008
38

Mr. 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 

39

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 

40

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.

41

Figure 1. Weekly Omaha no. 2 corn and Decatur 48% protein soybean meal (1996–

present).

Figure 2. Total corn disappearance by type of use. Source: USDA, ERS Feedgrains 

Database.


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Figure 3. 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.


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Figure 4. Trade weighted dollar exchange rate index and net pork export relationship.

Figure 5. 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 


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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.

Figure 6. 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.


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Figure 7. 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.


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Figure 8. 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.


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Figure 9. Continuation series of June Lean Hog futures prices 2007–2010.

Figure 10. Continuation series of December Lean Hog futures prices 2007–2010. 

Obviously, 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 


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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.

Figure 11. 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.


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Figure 12. 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.


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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 

51

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 11⁄2 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 

52

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. 

53

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 

54

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 

55

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:]

56

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 

57

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 probVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00061 Fmt 6633 Sfmt 6601 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
58

ably 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 

59

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 KanVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00063 Fmt 6633 Sfmt 6601 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
60

sas 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 

61

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. 

62

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:] 

63

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 

64

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 

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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 onfarm 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 reVerDate 0ct 09 2002 08:56 Feb 16, 2010 Jkt 041481 PO 00000 Frm 00069 Fmt 6621 Sfmt 6621 I:\DOCS\111-33\54577.TXT AGR1 PsN: BRIAN
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searchers 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.

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* There was no response from the witnesses by the time this hearing went to press. 

Response by David Moody, Chairman and Past President, Public Policy 

Committee, Iowa Pork Producers Association 

Question Submitted by Hon. Frank D. Lucas, a Representative in Congress from 

Oklahoma 

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 * 

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?

Æ