>
> March 24, 1999
> A-hed
> The Hog Farmers' Losses Put
> A Butcher Shop on Knife-Edge
> By CARL QUINTANILLA
> Staff Reporter of THE WALL STREET JOURNAL
>
>
> HAUBSTADT, Ind. -- As farmers here saw hog prices plunge
> to Depression-era lows this winter, they felt as if salt
> were being rubbed in their wounds. For even as they were
> losing heavily, somebody down the line -- big meatpackers
> or supermarket chains -- seemed to be getting rich on
> pigs: The price of pork at the supermarket was staying
> about as high as ever.
>
>
> Janet and Tom Dewig
>
> "These big companies are essentially saying, 'Your goods
> are worth $20 -- we'll pay you $4,' " says Tom Dewig, a
> local businessman. "That's what our farmers are going
> through."
>
> He knows what he's talking about. His business is Dewig
> Meats, a place where hogs waddle in the back, then are
> displayed out front a few hours later as ham and sausage.
> Mr. Dewig (pronounced DAY-wig) is a meatpacker and a meat
> retailer, too.
>
> But he's not one of those "big companies," for whom
> farmers' pain is assumed to be just an abstraction. Mr.
> Dewig lives right here in Haubstadt. His delivery truck,
> with a pink pig painted on the side, is a familiar sight
> as it rumbles through this small town's streets. Dewig
> Meats, run by Tom and Janet Dewig, even caters local
> picnics.
>
> Rare Moment
>
> So what to do? On the one hand, the depressed hog market
> presented the chance of a lifetime for them, a historic
> "spread" between what they could buy pork for alive and
> what they could sell it for dressed. But if the Dewigs
> made a killing on this, they knew they were doing it off
> the misfortune of hard-working rural neighbors, some of
> them on the verge of bankruptcy. And other people would
> know it, too.
>
> Then again, the Dewigs are hard-working themselves, and
> they too have their dreams. The couple, both 52 years
old,
> wanted to expand and remodel the business. "It was
> difficult," says Mr. Dewig, as he recalls the family's
> deliberations over how to deal with local farmers when
the
> hog business first fell out of bed. "Prices were an
> absolute bargain, but we also had to know in the back of
> our head that if we weren't fair, we'd end up paying for
> it."
>
> This isn't the kind of thing that much troubles a big,
> publicly held company. It is different when, as Mr. Dewig
> says, "I've got to live with these people."
>
> Except for the 175-year-old Log Inn, said to have once
> served Abraham Lincoln, Dewig Meats is about the only
> widely known business in Haubstadt, a town of 1,445 set
> among the rolling hills of southern Indiana. Dewig has 50
> employees and close to $10 million in annual sales. But
it
> is also something of an anachronism. As a few companies
> like IBP Inc., Excel, Smithfield Foods Inc. and the Swift
> & Co. unit of ConAgra Inc. have grabbed most of the
> hog-slaughter business, and as supermarket chains have
> supplanted local butchers, the independent meat shop with
> its own "kill floor" has been getting scarcer. Only about
> 1,800 remain, and almost nobody is opening a new one.
> Dewig Meats dates from 1916, when Tom's grandfather
> started it.
>
> It is a place where locals take visitors, showing them
> displays of special cuts and sausages made from local
> livestock. Its following is loyal. "Nothing compares to
> what those guys make," says Thomas Chamberlain, a South
> Carolina resident who never visits his mother in
Haubstadt
> without buying a 10-pound box of the Dewigs' frozen
> bratwursts to grill at home.
>
> The Dewigs have made a good living. Their home is a brick
> estate with circular driveway, topiary and pig statues.
> But they don't take their welcome for granted. Each June
> they have a customer-appreciation day, selling bratwurst
> for a quarter and giving proceeds to a hospital. ("They
> hire extra people just to help park the cars," says City
> Clerk Bonnie Wagner.) When the volunteer fire
department's
> oldest engine, a 1947 Ford, was about to be taken away by
> a vintage-truck collector. Mr. Dewig bought it. He gives
> schoolchildren rides in it.
>
> Mr. Dewig typically pays hog farmers the same price as
> Excel, a Cargill Inc. unit and the nation's
second-largest
> meatpacker, which has a large plant down the road. Dewig
> Meats can slaughter a mere 200 hogs a week, but some
> farmers would rather sell to it than to Excel; that way
> they know their produce is served on local dinner tables
> and in restaurants.
>
> And selling to the Dewigs is more personal. The Excel
> plant is a fortress-like edifice with a wire fence and
> security guards at the gate. At Dewig Meats, a farmer
> dropping off livestock can sip coffee with the
proprietors
> while watching his hogs amble off trailers. (Their next
> stop is the kill floor, where a bolt of electricity to
the
> head kills them, after which half a dozen workers with
> knives set to work.)
>
> The loyalty is such that when hog prices rose two years
> ago to a lofty 63 cents a pound, a few farmers offered to
> sell to Dewig Meats for about 60 cents. Mr. Dewig
wouldn't
> accept the discount. "No matter what I said, I couldn't
> make him do it," says Joe Knapp, a farmer. "I know he was
> losing money on that pork." Large packers also took a
> beating in that period.
>
> That price spike helped fuel a nationwide hog-herd
> overexpansion, which began to depress prices last summer.
> By August, prices hovered at 30 cents a pound, or about
> five cents less than break-even for most growers.
>
> At his meat shop, Mr. Dewig rushed to a monitor each
> morning to check the price of hogs, unable to believe his
> eyes. "We'd sit there and look at the thing and say, 'It
> can't go any lower.' But it did," he says, shaking his
> head. "The next day, we'd say, 'It can't go any lower.'
> But it did again."
>
> Mr. Dewig had always said that no hog should sell for
less
> than 30 cents a pound. So when the market price dipped
> into the mid-20s in September and October, he continued
> paying farmers 30, knowing that even at that price, he
> could profit handily. By Halloween, though, the price
> farmers could get elsewhere was down almost to 20 cents.
> Mr. Dewig finally broke his rule and started paying less
> than 30 cents. "I lowered my standards," he says.
>
> When the market price fell into the teens, Mr. Dewig set
> himself a new floor: 20 cents a pound. But then, in
> mid-December, prices briefly dipped below 10 cents a
pound
> -- about a 60-year low -- and Mr. Dewig lowered his
> standards yet again. Still, on a day when the Excel plant
> was offering farmers 11.5 cents a pound, Mr. Dewig
offered
> a nickel more.
>
> Losing Big
>
> Like hog growers all across America, farmers around
> Haubstadt were losing megabucks. A 240-pound
market-weight
> hog that would have brought $140 or so a few years ago
was
> at one point worth only $25 or $30. Farmers were losing
> roughly $50 a head, just when the profitability had
> vanished from virtually everything else they could raise.
>
> But IBP Inc., acquiring hogs at this depressed price, saw
> its profits quadruple in the fourth quarter. Besides the
> low hog prices, packers benefited from being able to run
> their plants at full capacity, and thus efficiently.
> Packers lowered wholesale prices somewhat, but they by no
> means passed along all their savings.
>
> Meanwhile, supermarkets, although they had room to cut
> pork prices, had scant competitive reason to do so. For
> one thing, food shoppers are chiefly sensitive to price
> increases, not to price cuts. And in this case, even if
> price cuts did spur demand, supermarkets couldn't obtain
> more pork to sell, because the packers couldn't kill hogs
> any faster. Both industries reject farmers' suspicions of
> collusion.
>
> The Dewigs also fared well: They had the best fourth
> quarter in their history. "Our margins went up because
> costs were low-plain and simple," Mr. Dewig says.
>
> He and his wife started celebrating: Pursuing their dream
> of expansion, they put $300,000 into new freezers and
> slaughtering equipment. They are planning a $1.6 million
> improvement to the store's retail front, expanding the
> 60-foot refrigerator case, which holds a mother lode of
> rib-eye steaks, pork chops and smoked jowl. This month,
> the Dewigs missed the installation of a new smokehouse
> because they were on a cruise to Barbados. The meat
> business "has been good to me," Mr. Dewig says. "Real,
> real good."
>
> 'Good Guy'
>
> For his hog-farmer neighbors, the above-market prices
> Dewig Meats paid helped ease both losses and resentment.
> "He's fair," says Ray Rexing, who has sold hogs to Mr.
> Dewig since 1970.
>
> Mr. Knapp is of two minds. Mr. Dewig "understands we're
> losing our a___ and he's making money faster than he can
> rake it in," the farmer says. But the next moment, he
> recalls the losses Mr. Dewig himself took two or three
> years ago when hog farmers were doing well, and calls him
> a "dang good guy."
>
> Talk of farmers throwing their hands in the air in
> frustration elicits only understanding from Mr. Dewig.
> "Where would your hands be?" he says. "Some were out of
> humor, and rightfully so." Still, inside the shop,
> farmers' plight has created tension with customers, who
> sometimes "look at you like it was your fault," says Mrs.
> Dewig.
>
> To convince farmers of its support, Dewig Meats
advertised
> that it would sell pork items at special prices every
> week. One week, while supermarkets charged $1.99 a pound
> for pork loin, Dewig Meats sold it for 99 cents. "I've
> never heard of anyone else doing 99 cents a pound," says
> Steve Pohl, another local farmer.
>
> Hog prices have rebounded a bit. Some economists expect
> them to get back above 35 cents a pound later this year,
> which would narrow farmers' losses and meatpackers' and
> meat retailers' profits. Mr. Dewig says nothing will have
> changed between him and his suppliers, some of them
> friends since grade school. He says he is pleased with
> "the way I've treated these farmers. ... And I'm sure
they
> are, too."
>
>
>
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> URL for this Article:
>
http://interactive.wsj.com/archive/retrieve.cgi?id=SB922228266738209342.djm
>
>
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>
>
> Copyright © 1999 Dow Jones & Company, Inc. All Rights
> Reserved.
> Printing, distribution, and use of this material is
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> laws.
>
===
------------------
Kate A. Smith, Ph.D.
Vice President
AUS Consultants, Inc.
155 Gaither Drive
Moorestown, NJ 08057
609-234-9200
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