Hog Futures Hit 7-Year High as Feed Costs Force Some Pork Producers to Liquidate Sows
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Despite grain prices softening the past two weeks, corn and soybean prices are still at levels not seen in years.
And that has livestock producers facing some difficult decisions, including pork producers.
The numbers look promising. The latest Sterling Profit Tracker shows farrow to finish producers are looking at average margins in the green, netting $94 per head. While still in the positive territory, it did slip from the $107 dollars of potential profits last week. However, the latest Profit Tracker is better than the negative $51 dollars per head producers faced at this time last year when processing capacity was seeing major bottlenecks.
"Obviously, we have grain prices that are going up, too," says Amanda Adam, a pork producers in Washington County, Iowa. "So the margins are still different than they would be if grain prices were back in the $3 or $4 range."
While hog prices and profits sit higher right now, some producers are forced to look at liquidation. And it's all due to rising feed costs.
"Just this morning, we had a client from Missouri call and said that in his area, they're seeing sow liquidation," says Brian Splitt of AgMarket.Net. "And it's one of those things when you think back to when we were trading $3 to $4, corn, producers said 'we're just going to market this corn off the farm; we're going to hoof it off the farm.' And now when you have $7 plus cash corn, that doesn't look as viable. So, i think it's a lot harder to put that that $7 corn in an animal, it's a lot easier to market that $7 corn, and so we're seeing some pressure on on the liquidation side because of that."
As the market searches to find a balance, CME hog future rallied to the highest level in nearly seven years on Friday. That's as hog futures hit prices not seen since August 2014. Traders say a strong appetite for pork at restaurants is helping the demand picture.
Chip Nellinger of Blue Reef Agri-Marketing says it's possible higher grain prices could force livestock prices higher, too.
"I think from a livestock perspective, what we've seen historically, eventually if corn and bean prices continue higher from here, and go dramatically higher, maybe even test or exceed all time highs, it will drag the livestock with it," says Nellinger. "And to keep those margins kind of in check a little bit. We haven't seen that yet. But if that continues, you get to see these deferred hog and cattle prices really put a nice rally in to try to keep the margins together. Otherwise, you've got massive, massive losses. And a huge disruption in the livestock industry."
