After several years of struggling to earn a profit, pork producers could find themselves back in the black in 2012.
Profits in 2012 are forecast at about $17 per head, which would be the highest since 2006, says Purdue University economist Chris Hurt. In 2006 corn prices were $2.30 per bushel, compared with $6 to $7 per bushel in 2011, and hogs were bringing a profit of $27 per head. While a return to profitability is welcome news, it seems there are broader implications. "It looks like the pork industry has probably ‘turned the corner’ on high feed prices heading into 2012," Hurt says.
Some factors contributing to lower feed costs in 2012 include abundant and cheap feed wheat, potential moderation in the rate of growth in corn use for ethanol, the prospect of a larger South American soybean crop and hope for a return to higher U.S. corn and soybean yields in 2012.
The pork industry has struggled to adapt to higher feed prices in recent years due, in part, to the recession. But hog producers took another hit when the H1N1 virus was initially called "swine flu," even though it was a human virus spread by people. At the start of the recession in 2008, hog producers lost an estimated $17 per head, and in 2009 the losses increased to $24 per head.
"These large financial losses resulted in some downsizing of the industry through discouragement and bankruptcy," Hurt says.
Between the industry downsizing and exports increasing, the amount of pork available to U.S. consumers has dropped from about 51 lb. per person in 2007 to an estimated 46 lb. per person in 2012. According to Hurt, that reduction has helped retail pork prices climb from $2.87 per pound in 2007 to $3.43 per pound in 2011—a 20% increase. Pork producers initially began returning to profitability in 2010, with an average profit of $10 per head. In 2011, that number increased
to $14 per head.