Conditions ripe for profits | Pork demand is good and breeding herd reductions may reach five percent
The hog profitability outlook is good.
That might come as a surprise to many in this period of extreme losses and near-panic, but market analysts say hog producers should be making profits next summer and all the way through the following calendar year.
“We should see profitability in the summer,” said Purdue university hog industry analyst and economist Chris Hurt.
“That should continue for the fall of 2013 and most all of 2014.”
Pork demand is good. Packer capacity is fine, after the present forced herd liquidations are done. Exports are good.
And the long-term outlook has suddenly become much better. Farmers in the U.S. are liquidating breeding stock and are expected to continue to do so. As well, producers are not restocking their barns with gilts or weanlings, and it is unlikely that the U.S. Midwest will experience another severe drought next summer.
“We could cut four to five percent of the breeding stock (during the present chaos),” said Hurt.
“This will set us up for smaller pork supplies starting in about June. We will see smaller U.S. supplies of pork and that will be further encouraging to hog prices in the last half of 2013.”
Hurt and other analysts attribute the hog crisis to a sudden increase in feedgrain prices that struck in early June, as the world’s markets realized the U.S. Midwest drought was not short-term.
As the drought continued, corn futures prices rose from $5.25 per bushel to $8 per bu. by the beginning of August. Soybean prices rose from $13 per bushel at the beginning of June to $17 by the beginning of September.
Simultaneously, lean hog futures prices fell from $80 per hundredweight in June and July to $71 by late August and early September. That combination of surging feedgrain prices and falling hog prices has produced losses of around $50 per pig for cash market hog producers and severe losses for weanling producers.
There is nothing specific to the hog industry behind the sudden trauma of severe losses.
“It’s not a demand issue. It’s just strictly on the cost of production side,” said Hurt.
With demand continuing strong, farmers next spring and summer should be able to supply a market that is short of pigs and pork. That should make next fall, traditionally the weakest period of the year, much better than it would have been without the Midwest drought.
May to July corn futures are trading for $7.40 to $7.50 per bu. September to December corn futures are trading at $6.66 to $6.37. May to July lean hogs futures are trading for $95.55 to $97.45. October to December 2013 lean hog futures are trading for $87.20 to $85.70.
That’s a better spread for hog producers and should bring break-evens for most by March-April and profits through the summer into the fall.
“We’re lining up well for the second half of 2013,” said Tyler Fulton of Hams Marketing.