Economist: Profitability for Pork Producers Just Around the Corner

July 8, 2013 06:02 AM

Purdue University ag economist Chris Hurt says pork producers could be just weeks away from an extended period of profitability due to improved prospects for U.S. corn and soybean production. He says the last six years have been an unusual period for the pork industry, as feed costs have been the largest driver of the financial outlook. But if crop production returns to more normal levels, the industry's focus will shift to pork supplies, domestic meat demand and exports.

While acknowledging lower feed costs are not yet a reality, the market's anticipation of lower feed costs is on the near horizon if growing conditions continue to improve. Hurt says the outlook for hog producers is the polar opposite of the past 12 months. "Compared to the last 12 months, corn prices are expected to be nearly $2.00 per bu. lower in the coming 12 months. Soybean meal prices are expected to be about $100 per ton lower on average. The combination of these two reduces estimated total costs by about $13 per live hundredweight. Hog prices are expected to be somewhat higher in the next 12 months as well. The bottom line is that losses of $21 per head during the last 12 months gives way to projected profits of $16 per head in the 12 months -- spanning the last-half of 2013 and the first-half of 2014," he says.

Hurt notes the latest Hogs & Pigs Report signaled producers' expansion plans were on hold, as the size of the spring pig crop was unchanged. "Given the increasing realization of better crop production, pork producers are expected to begin some modest expansion late this summer and especially in the fall of 2013," he notes. "The industry is expected to be profitable at least through next summer. This expansion may be in the one to three percent range over the coming year. In the longer-run, producers will want to examine the yet to be answered question of where feed prices will settle. Corn prices under $5.50 per bushel could stimulate some expansion. The further below $5.50, the greater the expansion stimulus."



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