The hog industry keeps getting more efficient. That means it’s probably going to be harder for producers to turn profits, analysts say.
Production can now adjust quickly to price forecasts, which cuts the chance of significant price rallies created by hog shortages.
“Since the industry is so much more flexible, it can adapt more quickly to changing prices,” said George Morris Centre meat market analyst Kevin Grier.
“Those supply holes will be filled more easily than they have been in the past.”
The four-year pig price cycle, which tends to have sharp ups and downs as producers react to price conditions, has generally created pig shortages that lead to periods of higher prices.
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But those shortages will be minimized if today’s efficient barns can simply produce more pork during the expected shortage.
That will minimize the strength of price recoveries.
“The possibility of enjoying big jumps is perhaps less and less,” said Grier.
University of Missouri agricultural economist Ron Plain said hog production now is less profitable than it has been for most of the last century.
“The good times tended to outweigh, last longer and be better than the bad times,” said Plain.
“Hog production was a fairly profitable business to be in. For the past five years that has not been the case.”
That weakness is likely to continue because efficiency keeps increasing. When the whole industry increases its productivity, more pork is produced, and if there isn’t a corresponding increase in demand, prices will suffer.
Plain said sow productivity has been increasing faster than demand and there’s no reason to think it will stop.
Since the late 1990s, sow productivity, which means the amount of pork produced by every sow in production, has increased about four percent per year.
However, there is only about a 1.5 percent annual increase in domestic demand for pork. The excess 2.5 percent in sow productivity can only be reduced by getting rid of 2.5 percent of sows every year, Plain said.
That means closing 2.5 percent of barn space every year. That has traditionally been accomplished by producers shutting antiquated facilities. But in the 1990s, many giant state-of-the-art facilities were built and the owners are not likely to shut the doors and leave the industry, even if profits are poor.
“It’s a lot easier to decide to shut down a 25-year-old building than it is a five-year-old or 10-year-old building,” said Plain.
Even if the owners go bankrupt, the new barns are easy to sell and put back into production.
Plain said the continuing increase in sow productivity is caused by three factors.
Farmers are feeding pigs longer, making slaughter pigs an average one pound heavier per year. Plain thinks that weight growth will continue to increase at the same rate.
Better genetics and management are making sows produce more piglets per litter, another phenomenon that is likely to persist.
Sows are also producing more litters per year.
“When you put it all together, that growth of four percent pork per sow per year may be sustained for quite some time,” said Plain.
“We may be in this situation of chronically overproducing pork, which means chronically overproducing red ink.”
