Financial Redemption Pork producers continued to reduce the size of the breeding herd and pork supplies will remain moderate over the next 12 months, increasing the assurance that strongly profitable prices will remain in place at least through the first-half of 2001. There are multiple reasons. The first is the large amount of debt that producers built up during 1998 and 1999. Now that the hog enterprise is generating positive returns, it is the desire of both producers and their lenders to restore their equity position to a more comfortable level. This factor will likely continue to delay expansion.
Fear is another powerful behavioral modifier at work.
The depth of losses in 1998 and 1999 was so extreme, that many producers will forgo expansion until they are very comfortable with their financial position and with the longer-run outlook for pork production profitability. Finally, since the recent survey was conducted around June 1, the issue of new crop feed prices was still very uncertain, with ominous forecast of drought in the Midwest. The movement toward expansion will likely begin this fall. By September, producers will have had six months of profitable hog prices to restore financial reserves. Finally considerable confidence will be restored in the future of the industry by that time, and the longer-term outlook will feel more positive.