Hog producers will enjoy a profitable summer in 2015 after the tumultuous winter that followed the deadly PEDv outbreak.
“I see this summer playing out quite normally,” explains Steve Meyer, vice president of pork analysis for Express Markets Inc., in an interview with “AgriTalk” radio at the World Pork Expo.
“We had this litany of negative factors last winter: a stronger dollar, the pork situation, extra pigs coming. When prices started to come down, there was incentive to get the hogs sold this week instead of next week. We started pulling weights down, which pulled hogs forward. You just had all those pile up in the first quarter. We’ve pretty well recovered from that. We’ve traded these hogs back up into the range where we thought we were going to be out of the March hogs and pigs report.”
That’s not to downplay the severity of this past summer’s PEDv outbreak. Producers likely lost between 6 million and 8 million pigs, Meyer explains, at a time when analysts had predicted gains of between 2 million and 3 million pigs.
Prices Climb Higher. “I think the futures market right now is pretty fairly priced,” Meyer says. “I’ve been recommending to people to take some margin coverage on their supply for the next year or so at this point on at least a portion of those pigs. We look for a little bit more of a rally here, maybe take the cutout value up to the low $90s. We may sell a $90 hog here in June and July—not very many of those, I don’t think. The average is going to be up in the mid-$80s. That’s still quite profitable when you’ve got costs down in the low $70s. It’s not going to be any kind of year like last year but still a very solid year.”
Gains Present Challenges. On the negative side, those price levels could fuel the fire of expansion and put a crunch on the supply chain.
“We’re looking for sow herd year-over-year numbers to be up 2% to 3%, maybe 3.5% in some quarters, for the next three or four quarters,” Meyer points out. “That would put us well above 6 million sows in December this year, 6% more than 2 years ago. We’re getting some growth, and the real question is the productivity rates we had before PEDv. We think the rate is there. We’ve kind of dropped that line down. We’ve lost a year, so we moved it a year to the right, but it looks like the rate is going back to 2%.
"That would put us up 4% to 5% sometime in the second half of 2016, and we’re going to start challenging slaughter capacity. Those new plants aren’t going to be here by then. I think producers need to be very careful about their expansion plans here and don’t put us in a pickle here the second half or fourth quarter of 2016.”