Inflation Report From the Pig Farm: Bringing Home Less Bacon

Time to follow Wells $treet’s nose for news to a very smelly place, but that’s where I smell money, baby. If you like business stories that aren’t boring, check out my homepage.

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I visit Iowa more than any other state outside of my native California because I cover a lot of farm stories for CNBC. I was back in Iowa this week… for a story about California.

The Golden State passed Prop 12 four years ago. The law mandates (among other things) that farmers who want to sell pork into the California market have to provide mother pigs with at least 24 square feet of space per animal so they can move around. Also, those same breeding pigs cannot be confined in small crates.

It was supposed to take effect January 1, but it’s been put on hold as the state tries to figure out how to regulate the law (go, bureaucrats!), and because the pork industry is squealing all the way to the U.S. Supreme Court. The National Pork Producers Council and the American Farm Bureau Federation are suing, saying it’s unconstitutional for one state to put undue financial hardship on the way commerce is done in other states. They also say the rules about spacing are arbitrary.

A sow at Mogler Farms in Alvord, Iowa/CNBC

Prop 12 was upheld by a lower court, and if it prevails at the high court, Californians had better stock up! While California consumes 15% of domestic pork, it produces almost zero, and very few hog operations in places like Iowa have prepared to comply with the new law. Bottom line: there could be a bacon shortage in La-La Land (gasp!).

So I spoke with a couple of Iowa hog farmers, one that’s already compliant with California’s new rules — Ron Mardesen in the town of Elliott, and another farmer — Dwight Mogler in Alvord — who has no intention of spending millions of dollars to bow to California’s wishes. Dwight already invested $12 million in a state-of-the-art facility that he considers the most humane large-scale operation out there.

Ron Mardesen of A-Frame Acres in Elliott, Iowa/photo by me

Dwight Mogler of Mogler Farms in Alvord, Iowa/CNBC

Here’s my story for CNBC’s “The News with Shepard Smith.” (And, um, ignore the fact that the graphic is indicating a sow's individual space needs to be 24x24, which would be 576 square feet, instead of the actual space requirement of, like, 6x4, or 8x3, which makes 24 square feet. I hate myself.)

In Other News, Food Inflation Gets Real

While I was in Iowa, I decided to ask the farmers about this year’s corn crop. It’s not lookin’ good.

“We’ve had a tremendous amount of challenges getting ready to get this crop in the ground,” says Ron, standing in the middle of a corn field with green shoots just emerging (and me trampling over a few — nice job, Jane).

This matters to anyone who eats meat, because most of America’s livestock is fed corn and soybeans to fatten up quickly. But prices for those crops are near multi-year highs. Farmers either have to pass those costs along (if they can), or they may reduce the size of their herds until corn prices come down and profits return. Either way, it’s gonna cost you the consumer.

Corn shoots finally popping up in Iowa/CNBC

Ron’s corn poked out of the earth only a couple of days ago, because farmers waited to plant. The weather this spring has been wet and cold, and seeds went into the ground late. “Normally by this time, this corn will be four to six inches tall,” he tells me.

This could mean a late harvest and a smaller crop. When I asked how much of the corn region is impacted by the late plantings, Ron replied, “Three words: The Corn Belt.” Buckle up, America.

He grows about half the feed he needs for his animals — and his entire crop goes to his animals. He buys the rest, or barters for it with the fertilizer his pigs create.

Dwight also grows a few thousand acres of corn and beans, but his situation is even tougher.

“We actually can only provide roughly 25% of our feed needs for our livestock,” he tells me. He’s buying the rest, and current prices have more than doubled in two years.

But Dwight says he’s not able to pass the entire cost along to the packing plants buying his pork, even though companies like Tyson report increased profits and margins. (I’ve written before about the pricing disconnect between farmers and packers.)

Meantime, retail pork prices are way up. Chops cost 9% more in April than they did a year ago, averaging $4.18 a pound. Bacon is up 19%, at $7.42/lb. Yet the share of the retail price going to farmers is down from 30% last year to 26% now.

So instead of heading into the most profitable part of the year for pork — grilling season — when Dwight makes enough money to get him through the winter, he’s selling pigs for close to break even. He says it doesn’t help that the Chinese market has dropped off.

“We’re in a little bit of a precarious position,” he says. “All the dynamics we have going on in the global marketplace puts us in a really difficult spot right now, to be honest with you.”

Ron Mardesen is in a better position because Niman Ranch has an agreement with its farmers to pay more for pork as feed costs go up, though Ron’s margins are still getting squeezed.

Of course, the cure for high prices is… high prices. Hog farmers may raise fewer hogs and instead focus on growing more feed, and then the pendulum may swing back. It’d be nice if that pendulum stopped swinging once in a while, but that’s farming.

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Are you changing your meat-eating habits because of higher prices? Join the discussion below.

Cover photo at Mogler Farms by CNBC.

📫 jane@janewells.com

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