Chris Hurt said earlier this summer that the shape of the embattled hog industry would be improving as the herd began to shrink (Read More).

But, the "equity drain" in the hog industry that's slammed so many farmers has been slower to reverse than originally thought, says Hurt, a Purdue University ag economist. And, for a number of reasons.

First, the herd liquidation that he says began in earnest 2 years ago hasn't happened as quickly and deeply as it probably needs to; the U.S. breeding herd has slipped only 3%, Hurt says. That's compared to a liquidation of 10% between 1998 and 2000. Why the change?

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"There are at least four potential reasons for the slower rate of liquidation. The first may be that this time the industry's losses were primarily related to much higher feed prices," the economist says. "Perhaps producers were not convinced that feed prices would stay high after their acceleration in late 2007."

A second factor lies on the export side: Hurt says a temporary bump in exports last summer may have been construed as a new trend rather than a one-time event driven by demand from China and a "cheap dollar.

"That surge was the primary stimulus for live hog prices moving from $39 in March 2008 to $58 in May, and to highs above $60 in August," Hurt says. "Prices that high meant $5-per-bushel corn was not as big of a threat as earlier thought, and unfortunately, this delayed breeding herd liquidation.

"Looking back, that export surge was a one-time unique event, as exports have returned to much lower, but more normal levels," he adds.

Current industry infrastructure's also a reason for the difficulty in reshaping the U.S. herd. As industry demographics have changed, it's made the trim a heavy lift.

"The industry has never had to make such a large downward adjustment with such a concentrated set of producers," Hurt says.

Finally, the starting point of this downturn was higher on the equity scale than it was when the last herd reduction began in 1998. For that reason, income reversals -- which didn't hit every farm -- have not had the immediate negative impact across the board that they did a decade ago. For that reason, some have been hesitant to respond to the macro-level trend.

"While the current string of losses has been large, the profits and net worth accumulated in the generally profitable period from 2000 until the current downturn began in the final quarter of 2007 were large," Hurt says. "This makes the point that all hog farms are probably not in financial trouble. Those most vulnerable to the current financial losses are those that have started production in the last three years, those that have had large expansions in the past few years, and those that diverted some of their hog earnings in 2000 to 2007 into assets such as stocks or residential housing that plunged in value as well."

So, when will these factors coalesce, give way and allow profits to return to the hog industry? As earlier this summer, Hurt says he expects the losses to begin to level through until profits could return by next spring.

"I expect modest losses this fall, with live hog prices averaging about $40 to $42 and all costs near $45. For the winter, hog prices are expected to be in the low to mid $40s with costs near $46," he says. "Profits may return in the spring of 2010 with prices rising to the higher $40 and costs remaining in the $46 to $47 range. For all of 2010, I expect a modest profit of $2 to $5 per head."