Fat profit margin | Strong hog prices and moderating feed prices mean producers could bring home the bacon
DES MOINES, Iowa — The rest of 2014 and first half of 2015 should be profitable for hog farmers as long as they escape the Porcine Epidemic Diarrhea virus and a good crop is harvested, says hog market analyst Steve Meyer.
“The cost situation, with a normal crop, should really work in favour of producers,” said Meyer in an interview during the World Pork Expo June 4.
Meyer said he expects U.S. lean hog prices, on a carcass basis, will average $1.20 per pound or a few cents more over the summer, then trade in a range of $1 to $1.10 in the fourth quarter.
At the same time, farmers will generally produce a pound of carcass pig for a little more than 80 cents, with that dropping to the high-70s or even mid-70s if an average or good crop is harvested.
Meyer said he expects U.S. corn prices to average $4.15-$4.20 per bushel for new crop if farmers get an average harvest, and the price could fall below $4 if there is a good crop.
That leaves a fat margin of profit potential for farmers if they don’t get hit too hard by PED.
A PED infection can badly damage a farm’s production, with the average sow losing about two and a half piglets per litter. Various analysts have estimated the total death losses of piglets to be about seven to eight million in the past 12 months.
That brings up a mystery in the industry that Meyer and other analysts are trying to unravel: where is the gap created by all the dead piglets?
The March U.S. Department of Agriculture Hogs and Pigs Report found far fewer PED losses to hog numbers than almost all analysts predicted. The national herd was little changed from the year before.
Yet Meyer said many slaughter plants have or are planning to reduce operating hours because of short supplies of market pigs.
Meyer said farmers have been feeding pigs to heavier weights to capitalize on high prices. Slaughter weights are 10 pounds heavier than a year ago, which has so far kept the flow of pork to the market little affected by PED.
But that can’t continue, especially because the biggest surge of piglet deaths began about six months ago, which is when the pigs going to market in coming weeks were born.
If there really are millions of fewer pigs due to PED, that should begin showing up soon.
“I don’t think (heavier than year-before hogs) will keep up as we start trying to dip deeper into the supply of market hogs,” he said. “We’re going to have to pull some lighter pigs out.”
Meyer said regardless of USDA estimates, he expects summer slaughter to be down about 10 percent, which is reflected in July Chicago lean hog futures in the mid $120s per cwt. and August near $130. October and December are much lower, at $107 and $95 respectively.
Meyer thinks that summer-to-December spread will narrow from both ends.
“Personally I think August is a little high right now (and) December’s too low. I think we’ll see (December) trade up some,” said Meyer.
“We’ll have a seasonal break into the fall, but it won’t be down to the levels we’ve been accustomed to in the past.”
Meyer said he thinks the calendar year highs were reached with the “panic-buying” of March and April.