Good News for Pork Producers

Pork producers have begun the chant “four more months” as they can now see the light of profits as they are set to emerge from a tunnel of losses.

That tunnel of darkness stretched from the spring of 2012 through the winter of 2013, with average estimated losses of $18 per head, primarily due to high feed prices,according to Purdue University Extension economist Chris Hurt.

“Feed prices reached a summit in the third quarter of 2012 with the peak of the drought,” Hurt said. “Estimated total hog production costs shot up $10 per live hundredweight, reaching an estimated $72. Costs last fall and this winter dropped about $4 per hundredweight and are expected to moderate an additional $8 with normal 2013 crop production. By fall that could put estimated costs of production around $60 per hundredweight,” he said.

The December Hogs and Pigs report from USDA provides evidence that 2013 pork supplies will not be down as much as the 2 percent that had been anticipated, Hurt said. Rather, pork supplies for the year may be closer to unchanged with a 1 to 2 percent reduction in the first half offset by a 1 to 2 percent increase in the second half of the year. The size of the breeding herd was unchanged as of Dec. 1, 2012, when the expectation was that the herd had been reduced by at least 1 percent. In addition, winter farrowing intentions are unchanged, compared to a 2 percent reported reduction in the previous inventory report.

Market weights will also contribute to increasing pork supplies in the second half of the year. First-half weights are expected to be down about 1 percent as long as feed prices remain high. But those weights will begin to rise late in the summer, assuming feed prices drop with more normal crop production.

“Hog prices are expected to be somewhat stronger in 2013 due to small beef supplies, continued strong pork exports, and modestly improving consumer incomes,” Hurt said. “Live prices averaged about $62 in 2012 but are expected to rise to near $66 for 2013. Prices are expected to average near $63 in the first quarter, $71 in the second quarter, and $69 in the third quarter. Fall 2013 and winter 2014 prices are expected to reflect higher pork production with prices averaging around $61.

“For the immediate future, losses will continue in the first quarter of 2013 and are expected to average about $15 per head,” Hurt continued. “The return to profitability is expected to come in late April or early May when the spring hog price rally is under way and as meal prices edge lower with the South American soybean harvest.

Profits are projected at about $10 per head for the second and third quarters before returning to breakeven in the fall of 2013 and winter of 2014. Breakeven means that producers cover all costs, including full labor costs and full depreciation on buildings and equipment,” Hurt said.

According to Hurt, with the return of a profitable pork production outlook, some producers will be discussing expansion plans.

“Most realize that the level of feed prices are both the biggest threat to those anticipated profits and the greatest opportunity for extraordinary profitability over the next two years,” he said. “The threat is, of course, related to the continuation of the extreme drought in the western Corn Belt and the Great Plains states. Poor crops there in 2013 could send corn and soybean meal prices to new record highs. Such an outcome would likely extend losses for another year.

Alternatively, normal world yields in 2013 will likely send feed prices lower than current new-crop futures are indicating. Such an event would multiply pork profitability,” he said.

Hurt said that the U.S. pork industry has suffered with high feed prices partially driven by three consecutive years of poor U.S. corn crops. “Eventually, better yields will likely result in lower and less volatile feed prices. Almost everyone in the animal production industries, including pork producers, hope 2013 is the year that scenario begins.”