Profitability returns to pork production as feed prices fall. A reduction in slaughter numbers means producers have taken note, says Chris Hurt, Purdue University ag economist.
With a large-yielding corn crop expected this year, feed prices have been decreasing, which has turned around the outlook for hog profits.
Kent Bang of AgStar agrees. "For the next 12 months, the outlook is really strong," Bang says. "This is driven by strong demand for pork and significantly higher corn production, which pushes costs down."
This year’s huge crop could mean a cost savings of $35 to $40 per head regarding cost of production during the next 12 months, Bang says.
Hurt adds that the return to profitability means producers are more likely to retain or build the breeding herd, and weights are expected to jump as producers hold onto market hogs longer to gain profits on every pound.
Between mid-August and the end of September, slaughter rates dropped by an average of more than 5%, and weekly slaughter rates have been down anywhere from 3% to 10%.
"Given low slaughter numbers, cash prices of hogs have been sharply higher than in the same period in 2012 when they averaged $55 per live hundredweight," Hurt says. "With lower slaughter this year, they have averaged about $68 since mid-August."
Higher cash hog prices combined with lower feed costs are the key drivers for a profitable outlook during the next 12 months. Hurt says live-hog prices in the eastern Corn Belt are expected to average in the mid-$60s in the final quarter of 2013 and the first quarter of 2014. Slightly higher spring and summer prices are expected.
With production costs estimated at $57 per hundredweight, Hurt says cash prices in the mid- to high-$60s would mean profits of more than $20 per head. Bang says it could even be closer to $25 per head.