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On the Rebound

November 2, 2010
By: Guest Editor, Top Producer

TP 058 T10180

> Following more than a year of red ink, hog producers were back in the black this year. Hog prices need to stay strong to offset the return to costly feed.

TP 062 T10180

> There have been few months with positive returns to cattle feeding. Corn’s price rebound suggests fewer cattle on feed and shorter feeding periods.

Ronald Schultz weighed the pros and cons of getting out of the hog industry last year, but stuck it out. Schultz, with son-in-law Robert Seitzman, markets about 4,500 hogs a year. He admits he is on a “year-to-year” basis when it comes to staying in the business of pork production.

After record-low hog prices last year, the hog industry enjoyed a strong rebound in 2010 on lower hog numbers. In response, USDA’s September Hogs and Pigs report indicated farrowings would be down 1% from last year in the third quarter but increase slightly during December 2010 to February 2011.

The sharply higher price of corn prompted by the Oct. 8 Crop Produc-tion report could squash expansion plans. “If corn is above $5 per bushel, you need $143 to $147 per head to break even,” says Mark Greenwood of AgStar Financial Services. That’s especially true for producers who buy all their feed.

Chris Hurt of Purdue University says the hog price outlook remains optimistic through next summer, with prospects for live prices near $53 this fall and winter, a return to $57 in the second quarter of 2011 and $54 in the third quarter. “These prices imply that hog producers could pay a bit more than $5 a bushel for corn and still cover all costs,” he says.

Control Feed. Volatile corn prices have hog producers seeking more farmland to ensure a stable feed source for the long term. “Producers who do not grow all their corn are considering whether to purchase or rent more land,” Greenwood says. “I’ve heard this more and more from producers with strong balance sheets who could expand on the swine side, but instead are looking at increasing crop production.”

Jerry Fast, senior ag lender at Bank Midwest in Fairmont, Minn., concurs. Prices for prime farmland in his south central Minnesota area have jumped to around $5,500, while not far away in parts of Iowa, some prime land is selling for up to and beyond $9,000 an acre.

Regardless, Fast says, “established hog producers are the most aggressive in some areas in buying land. They know exactly what their cost of production is and, by feeding their own corn, they can lock in hog profits further out. If they are not highly leveraged, the producers who raised their own corn certainly survived the last downturn in much better shape.”

“If you’re a farmer making decent money right now, you’ve got to invest it in something,” says Schultz, who feeds as much as three-fourths of his crop to his hogs. “There’s nothing better than nondepreciable farmland. Even with our prices over $5,000 an acre, if a fellow finagles it right, you can pay for that land.”

Beef Is Bullish. Given a smaller fall calf crop, lower overall herd inventories and a 17% increase in beef exports through July over a year earlier, cattle prices continue to show strength.

USDA’s September report states that strong global demand will remain “robust,” particularly in Asia, where the weak U.S. dollar makes American beef more attractive than Australian beef, its chief competitor in Asia.

Meanwhile, pastures have seen ideal growing conditions this year, which means feeder cattle have remained on pasture longer than normal and are arriving at feedlots at heavier weights.

Bill Galt of White Sulphur Springs, Mont., runs his cow–calf and yearling herd on 100,000 acres of foothill pasture and agrees the season has been excellent. “I believe things are really going to hold up well in spite of the higher grain market,” he says. “The only two possible downsides are feed prices and the general economy,” which he worries could soften domestic demand—especially if higher grain prices result in higher meat prices.

Galt typically looks for a 300-lb. gain on grass with his herd before wintering the animals and selling 900-lb. steers. He’s already forward contracted next spring’s yearlings to feeders in Nebraska.

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FEATURED IN: Top Producer - November 2010
RELATED TOPICS: Beef, Dairy, Hogs, Marketing, Livestock, Cattle

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