Good times will keep rolling for beef sector longer than pork

CALGARY — Cow-calf operators probably have five more years of good profits to enjoy, says Informa Economics’ Rick Andersen.

However, hog farmers’ good times will likely end far sooner.

“It’s almost impossible to look today at a scenario where (hog) producers lose money for 2015,” Andersen told Informa’s Canadian Agriculture and Food Outlook conference Dec. 5.

“We’ve got another year of pretty darned good profitability coming.”

However, it’s possible that farmers will have rebuilt their disease-reduced herds enough by 2016 to knock prices back down.

“We know the pork industry will react to that profitability (with increased production) if they can.”

It’s an even better outlook for beef producers.

Chicken producers can boost flock sizes in months and hog producers can do it in a year or two, but beef herd expansion is slow and has particular problems in North America right now, Andersen said.

The continent’s shrinking cow herd has been met with surging prices, but fewer animals are being slaughtered as farmers hold onto heifers to expand the herd.

“That just shrinks that supply up that much more and keeps some very strong upward pressure on price,” said Andersen.

Hamburger supplies are becoming especially tight as farmers hold onto older cows and ones they might normally ship.

It means that while North American beef cow numbers might begin growing again next year, beef supplies will likely be lower, and “we’ll probably see new record highs on cattle in 2015.”

Expensive feeder cattle prices won’t be good for cattle feedlots, but they should be OK as long as corn is $2.50 to $4 per bushel.

Cow-calf producers should stay profitable at least until 2020 as long as crop prices stay low, even if cattle prices drop back from the present run of record highs.

“These markets will settle back down,” said Andersen.

“We’re not going to stay at the extreme pricing that we’ve seen this year in either cattle, beef or pork.”

The strength of beef prices will help pork prices stay high, even as farmers begin expanding herds.

“We can handle three, four, five percent more pork,” said Andersen.

That pork will have to come from an even bigger percentage increase in market hogs because much of this year’s pork has come from pigs fed to extremely big weights.

That has been a product of farmers trying to maximize the value they get out of each pig they ship and of farmers having extra room in barns because of porcine epidemic diarrhea deaths.

As PED wanes, which is a likely development, more pigs will be moving toward market weight in every barn and farmers won’t be able to hang on to pigs as long as they want. As a result, average weights will likely drop, producing less pork per pig.

These factors make Informa more bullish for 2015 lean hog futures prices than the market is today, with the firm expecting $95-$107 per hundredweight in the spring and summer market compared to present futures values of $86-$93.

Informa’s expectations of at least a couple of years of $3.50 per bu. corn prices and $8.50 per bu. soybeans underlie the profit expectations.

The profits might become squeezed if a drought somewhere sent crop prices sharply higher.

“We don’t want seven or eight dollar corn again, or that could certainly create problems,” Andersen said from the perspective of a livestock producer.

“We don’t need $15 soybeans and $400-$500 soybean meal.”

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