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Now Could Be TheTime to Invest in Pigs
IOWA - With hog prices so poor that a farrow to finish hog operation would lose 30 percent of its asset value in a year, would anyone want to build more hog buildings and expand operations, asks David Kruse, president of CommStock Investments Inc.The hog market is cyclical and when weak non-integrated producers either tire or are financially forced out, the hog market will turn and profits return, he says in an article in Iowa's Times Republican. He says that now could be the perfect time to invest and take advantage of the next upturn in the hog price cycle.
* "There is a time and tested adage that when corn prices set major highs, livestock prices will follow with accompanying new highs after liquidation from preceding industry losses occur. " |
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avid Kruse, President of CommStock Investments Inc.
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There is a time and tested adage that when corn prices set major highs, livestock prices will follow with accompanying new highs after liquidation from preceding industry losses occur. And although Kruse believes there is some merit in the old adage, producers must also remember that the modern industry is highly integrated and so the outcome may not necessarily be the same.
Packers own many of the hogs they process today so when fully integrated, profitable processing margins eliminate or minimize production losses on these hogs.
Inherent Advantages
This gives integrated producers like Smithfield Foods an inherent advantage over independent producers who only market hogs. Sustained high production levels of hogs have resulted in low pork prices to retailers and whatever bargain they pass on to consumers. The demand base for pork, both domestic and export has been expanded by sustained large supplies of pork.
Fertilizer costs have soared to where NPK for corn can cost $150/acre. Manure can replace most commercial fertilizer requirements so has become valuable, a profit center in itself for farmer/feeders.
Demand for manure to manage fertilizer costs has generated interest from farmers in providing sites for hog production facilities to hog companies. These buildings are located relative to adjacent crop ground to facilitate manure application.
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