CHICAGO, Dec 11 (Reuters) - Cheap grain has encouraged some U.S. hog farmers to switch away from a controversial drug to bulk up their animals, giving them the added benefit of being able to sell to big customers such as China, which have banned the supplement.
Ractopamine, known by the brand name Paylean, cuts the total cost of producing a hog by at least $2, or about two percent, experts said. Safety concerns have prompted 23 countries, including major importers Russia and China, to refuse meat containing the additive.
Christina Gaines, a spokeswoman for Elanco, one of the producers of ractopamine, said the drug “has been safely used in livestock production for more than a decade and affirmed by 30 regulatory authorities.”
While corn prices hovering near five-year lows have prompted U.S. hog farmers to use more grain and less ractopamine, supplies remain tight.
Nebraska hog farmer Brian Zimmerman now has Smithfield Foods , owned by China’s Shuanghui International Holdings Ltd., fighting over his ractopamine-free hogs with Hormel Foods.
All of Smithfield’s own hogs are raised free from ractopamine and most go to China, the world’s largest pork consumer.
China took $353 million of pork from the United States from January to October this year, the U.S. Department of Agriculture (USDA) said, down about $67 million from the same period last year which represents 8 percent of overall U.S. pork exports.
That could rise as the USDA said in October China would resume imports from 14 domestic pork plants and warehouses after halting some shipments in 2014 over the use of ractopamine.
“They need us, we need them. Hopefully they can be the goose that lays the golden egg for us,” said Zimmerman.
Ractopamine was used by roughly 80 percent of U.S. hog farms in 2012, when corn prices topped $8 per bushel. Corn costs have fallen to about $3.70 per bushel.
At the same time, profits for pork producers in the United States have deteriorated. Purdue University estimated 2014 hog farmer profits at $54.37 per head versus a projected loss of $3.20 for 2015 after hog numbers ballooned in the industry’s efforts to recover from a deadly pig virus.
Ron Plain, a University of Missouri economist, said the economics must add up.
“The fact that you lose some export markets matters. And, the value of the improved animal performance becomes a little less valuable when corn is cheap,” said Plain. (Reporting by Theopolis Waters in Chicago; editing by Grant McCool)