As a region, these states dropped their breeding herd by 5 percent in the past year and by 10 percent over the past two years. Hurt noted that there are multiple reasons. 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. In fact, some now consider that comfortable level' to be an even smaller debt percentage than was the guideline prior to late 1998. 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. Hurt believes 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. Producers confirmed this pattern with farrowing intentions for the summer down 2 percent, but with intentions for the fall up 1 percent.