Experts didn't predict this horrible drop in hog prices. It took everyone by surprise. Ag economists all over the country expected hog prices to stay in the mid to upper $40s until the fourth quarter. Of course, being economists, they hedged their bets. But they were as unpleasantly surprised as everyone else. Nobody in agriculture likes tariffs, but nobody expected steel tariffs to hammer hog markets.

When President Bush announced U.S. tariffs on steel, we all got a lesson in free market economics, but it wasn't a lesson any of us in agriculture needed. Who would have believed a U.S. tariff on foreign steel would drop the price of hogs $20 per hundredweight? It seems almost inconceivable. It's also indisputable. Russia immediately responded to the steel tariff by retaliating with the first weapon at hand: a refusal to purchase U.S. poultry. That refusal lasted from March 1 to April 15. Keep in mind Russia is no small player in the meat industry. The country imported 224 million pounds of chicken in January alone. The meat equivalent is more than 200,000 hogs per week. That glut of meat had to go somewhere. And it went to U.S. grocery stores. The resulting oversupply of poultry products burdened shelves of U.S. grocers with low-priced meat. By April, prices had dropped to $27 a hundredweight.

To make matters worse, the United States already had an oversupply of meat. Supplies were up 2.6 percent from the same period a year ago. Canadian hog production increased 20 percent in the last two years and is shoving U.S. pork products off Canadian shelves as well as off the shelves of our customers in other countries. According to the National Pork Producers Association, 5.8 million Canadian hogs are expected to cross the border this year. Canadian economists admit that hog imports from Canada could overwhelm U.S. slaughter capacity in the upcoming fourth quarter, further complicating the situation. On top of that a mild winter increased productivity and left heavier hogs (and cattle) and the resulting additional meat at the packers. Add in reduced demand from Japan. All of these incidents flattened and continue to depress the hog market.

The timing couldn't be worse. In late 1998 when hog prices fell to $8, independent hog producers exited the business in record numbers. Those who stayed took horrendous hits to their equity and their bottom lines. Most, if not all, of those surviving haven't yet recovered financially. How can they withstand this latest dismal market performance? I sincerely hope that June features a vastly improved hog market because we still have the fourth quarter to face.

There is no disputing that we are at the mercy of packers. I would not expect that situation to change even with attempted regulatory relief. There have always been cycles in the hog and cattle markets. In times of low prices, packers in the past have added additional shifts to deal with supply. But with the closing of inefficient plants over the past decade or so, packers are running at capacity. Shackle space is at a premium. Adding another shift is not an option. Simple economics demand packers back off on price. Many people in agriculture see this as collusion, as part of a plan by packers to control the market. A large number of MFA's members want legislative solutions to the packer issue. An equally large number are adamantly opposed to legislative solutions. I encourage both sides in this debate to express their views by participating in the Pork Producers or Farm Bureau.

Still, I always get nervous when government attempts to "straighten out" an economic condition. Economic problems very rarely are resolved by legislative solutions. In addition, respected ag economists tell us that packer margins do not appear to have increased beyond normal levels over the past eight years. That hasn't stopped many in industry and government from calling for that legislative relief.

Despite where your opinion falls on this issue, you can see the situation will result in further consolidation. The Smithfields and Murphys have the deep pockets necessary for long-term survival. They can weather this financial drought. Many producers do not. MFA is committed to serving the hog industry. We have 105 independent producers marketing hogs through our swine network. We have an additional 40 participating in MFA-sponsored swine opportunities. We sell MFA feed to many others. We have feed mills and employees dedicated to serving the swine industry. It is something that we as a cooperative want to support. It is in agriculture's best interest to have a viable, profitable swine industry. History proves that over time pork will be profitable. The question is when. Unfortunately, swine production is a volatile business and will remain so.

During the midst of this crisis, I addressed a class at Missouri Valley College. I had been invited to speak on agricultural business. I touched briefly on the necessity of a stable economy in agriculture and how free markets and low taxes were important components in that stability. Next time, I'll be sure to include more information on the unintended consequences of tariffs.