Testimony of John McNutt

On Behalf of the National Pork Producers Council

In Regard To

U. S. Farm Income Crisis

Before The

Senate Committee on Agriculture

August 5, 1999

Washington, DC

Chairman Lugar, Senator Harkin and members of the Committee, my name is John McNutt and I am the President of the National Pork Producers Council (NPPC) and a pork producer from Iowa City, Iowa. I represent the NPPC, its 44 member state organizations and America's pork producers.

Mr. Chairman, I would love to be able to tell this Committee that America's pork producers have fully recovered from the nightmare of 1998, when live hog prices dropped to sub-$10 per hundredweight, compared to a five-year average of $46.77.

Unfortunately, just the opposite is true. Thousands of independent pork producers like myself are still struggling to overcome a degree of economic adversity few segments of U.S. agriculture have ever experienced. Hog prices today are trading in the $32 to $34 per hundredweight range, still below break-even for most pork producers. By year's end we will have lost an estimated $4 billion in equity since January of 1998. University of Missouri economists predict that up to one-third of all pork producers nationwide could lose their hog operations in 1999 without some form of meaningful emergency income loss assistance.

On Tuesday, Secretary Glickman vividly summarized the problem in testimony before this Committee. "Looking ahead," he said, "prices for hogs, cattle, and field crops likely will remain low for the rest of 1999 and much of 2000, placing additional financial pressures on producers who specialize in the production of these commodities and are already highly leveraged."

He went on to say that "the hog market continues to be the most troubling area in the livestock and poultry complex," and that "hog producers are suffering unusual financial difficulty and merit assistance."

The pork industry has weathered bad prices before, but nothing in history could have prepared someone for December, 1998, when a combination of higher production, reduced slaughter capacity and higher than normal number of imported market hogs from Canada drove prices to historically low levels.

The producers who had the economic means to survive that catastrophe have been slowly bleeding ever since without even a brief respite. The accumulated suffering is quietly being played out in rural communities in every state, as good, efficient hog producers are forced to call it quits.

We believe that only decisive action by this Congress can prevent the next wave of hog operations from going on the auction block. NPPC has distributed to members of this Committee an 11-Point Economic Recovery Action Plan we believe can address both the short and long term problems facing our industry. All 11 points are attached for your information. Today, I would like to focus on just four.

First, pork producers are seeking emergency income loss assistance like our fellow row crop producers. As we have stated previously, we continue to pursue a one-time-only, direct cash infusion based on sales during the last quarter of 1998, with a $50,000 payment limitation applying. We believe these payments should be available to all producers, regardless of size, exactly like payments to grain farmers.

These payments, estimated at $600 million, would be similar to the "commodity equity payments" currently being discussed in various farm assistance proposals. Pork producers are calling on Congress to provide greater equity between crop and livestock producers when delivering emergency income loss assistance. It is our view that current emergency income loss assistance proposals are not equitable, given the fact that livestock sales normally make up more than 50 percent of total U.S. agricultural cash receipts.

As this Committee knows, the Small Hog Operations Program (SHOP) and the FY 1999 Emergency Supplemental Appropriations Bill provided direct cash payments to pork producers, totaling approximately $150 million. While smaller producers have benefited from the funds made available thus far, pork producers whose production accounts for the MAJORITY of the hogs raised in America have not yet qualified for any cash assistance program.

Second, USDA should immediately tender for at least 100,000 metric tons of pork as part of a humanitarian food package to Russia for delivery in fall/winter 1999. This would significantly reduce record cold storage stocks and boost hog market prices. The initial 50,000 metric ton announced in November 1998, was completed Monday. The delay created very negative market psychology that now must be reversed. Additional shipments must be made in a concise and timely manner and product assortment must be consistent with the seasonal demand for pork.

Third, it is imperative that steps be taken to reduce production in a way that has the smallest possible impact on domestic prices and helps our neighbors around the world victimized by recent economic or natural disasters. We believe a U.S. Pork Industry Humanitarian Inventory Assistance Program would accomplish these important twin goals. The pork necessary to allow the U.S. government to provide humanitarian assistance to targeted countries would come from hogs purchased by the USDA from pork producers bidding production into the program. Successful bidders would be required to operate at reduced production levels (normal operation minus the bid production) for a prescribed period of time. Packers would be allowed to accept and process the animals during non-work hours (weekends, nights, etc.). All animals would be processed into carcasses, specific cuts or canned product for humanitarian distribution to appropriate areas worldwide, thereby minimizing the impact on the domestic market.

Fourth, pork producers need your immediate support for their long-term survival. The USDA Undersecretary for Rural Development has pledged both technical and cost-share assistance in order to help pork producers form a national producer-owned cooperative(s), as well as to conduct an economic analysis of the feasibility of building and operating, processing and marketing operations. We urge Congress to join USDA in providing financial assistance of up to $500,000 to efficiently and effectively complete this economic analysis and move forward on building and operating plants.

Further, we believe it is imperative that USDA and Congress work with the pork industry to identify, secure and distribute sufficient grants, estimated at $150 million, to build and or expand new slaughter capacity - once the feasibility study is completed. Clearly, this action must be taken to provide the opportunity for independent pork producers to reposition themselves in the value chain to capture some of the record domestic and export value in the pork chain.

Summary

Clearly, the future structure, control and ownership of the pork industry are being determined as we speak. The viability of a large number of professional, independent pork producers hangs in the balance. This economic reality is being played out in lenders' offices and around farm kitchen tables every day across the country. Dramatic, direct and deliberate actions are required immediately by you and your colleagues to provide hardworking independent pork producers the financial lifeline they need to survive until equilibrium returns to the hog market.

Mr. Chairman, we need to work together to find ways to shock the hog marketplace to address the fear and provide hope for America's pork producers. I urge you and your Committee to carefully consider our pork producer action plan and diligently work to include emergency income loss assistance for pork producers in the final farm aid package that Congress will approve later this fall.

Finally, I'd like to respond briefly to the National Cattlemen's Beef Association's comments on Wednesday concerning government assistance to America's pork producers. Had cattle producers suffered comparable price drops to sub $10 hogs, cattle would have been selling for $16.44 per hundredweight instead of in the $60s. I believe had cattle producers experienced that economic scenario, their position regarding the role government should play in assisting livestock producers would be profoundly different. We will continue to have a dialogue with the cattle industry to seek constructive solutions to the challenges we all face in the U.S. meat sector.

That concludes my statement. I would be happy to answer any questions from the Committee Members.