Editor's note: This is one of seven 2014 marketing outlooks, the AgWeb.com editors are providing to help you succeed and be profitable in the coming year. Please check back each Monday for another outlook.
The 2012 drought left deep scars on the pork industry, but profit opportunities finally abound.
This year served as a turnaround time for cash-strapped hog producers. For the past several years, record-high feed prices plagued the industry causing herd reductions and monumental debt.
High feed costs have been a persisting problem since late 2006. Then, in a matter of a few weeks during the summer of 2012 drought caused corn prices to begin the surge to record highs. "In three weeks, the world just changed," says Chris Hurt, a Purdue Extension ag economist. "You can’t change your breeding program with hogs in three weeks."
Since pork producers were left with few options, they reduced herds as much as possible and weathered the storm. During the last half of 2012 and the first half of 2013, Hurt estimates producers lost a staggering $24 per head, primarily due to high feed prices.
Luckily, for pork producers, those cuts in hog production resulted in strong hog prices and much lower corn prices with the more favorable 2013 crop has returned the industry to profitability. Hurt says as of the last half of this year and during first half of 2014, producers should see profits of about $30 a head.
"While that sounds like a lot of money, producers are really just offsetting the drought losses and doing a little better," Hurt says. "But, these are good returns. By next spring and summer we should see some extraordinary returns – maybe around $40 per head."
Herd Expansion Begins
After several years of herd reductions, Ron Plain, University of Missouri Extension livestock marketing economist, says producers are finally able to start rebuilding breeding herds.
"History says it takes 5 months of profits before we start to see herd expansion," he says. "October was the fifth month of profits, so we’re expecting producers to start expanding breeding herds somewhere in the tail-end of 2013 and that will give us more hogs on the market starting in 4th quarter of 2014."
Hurt says producers are retaining and breeding more gilts. By next summer, Hurt predicts the U.S. breeding herd will have expanded by 2-3%.
A Side of Bacon