Producers Could See Increased Profitability

by 5m Editor
14 October 2011, at 4:41pm

US - Stronger hog prices and lower feed costs have put the pork outlook back into the black for the coming year, says a Purdue Extension agricultural economist.

According to the US Department of Agriculture's Hogs and Pigs report, there has been little increase in the country's breeding herd. With growing demand and a fairly stable-sized breeding herd, producers can expect to return to profitability in the next 12 months. The USDA also reported in its September Grain Stocks report that corn inventories now are higher than expected, reducing the cost of feed.

Chris Hurt said: "Pork producers have largely settled for the status quo because of the uncertainty over feed prices. As a result, the USDA says the breeding herd has expanded only slightly as producers awaited the corn and soybean yield and price outcomes of the 2011 growing season."

According to the USDA, the breeding herd increased 0.6 per cent nationwide in the last year. Most of the expansion has occurred in traditional Midwestern hog production states, where the herd was up by four per cent in Missouri; three per cent each in Ohio, Indiana and Nebraska; and one per cent in Iowa.

Dr Hurt continued: "While the breeding herd only increased fractionally, pork production will be up by a larger percentage due to the surging sow productivity. This summer, the number of pigs per litter set a new quarterly record at a bit above 10 pigs."

He said there is a possibility that the yearly average will be at 10 pigs or more for the first time. In 2005, the weaning rate was just nine pigs per litter, meaning there has been an annual productivity growth of about two per cent.

Dr Hurt said pork production for the coming year will be up two per cent to three per cent, led by higher sow productivity and by somewhat higher market weights and lower feed prices.

He explained: "While pork production will be higher in the next 12 months, hog prices are expected to be higher – led by strong demand. The stronger demand will come from very low levels of beef available in the domestic market and from continued growth in pork exports."

In the past 12 months, live hog prices have averaged about $62 per hundredweight but are expected to jump to $66 for the next 12 months.

Dr Hurt also said he expects feed costs to be lower, including lower corn and soybean meal prices.

"Total feed costs are forecast to be about $1.75 per hundredweight lower in the coming 12 months," he said.

Previously, pork producers targeted $7 cash corn prices as the threshold for profitability. Corn prices above $7 meant losses, while prices below $7 could mean profits, Dr Hurt said. Expected corn price averages for the next 12 months are about $6.10 per bushel.

He added: "These corn prices well below $7 turn the profit outlook positive. In the past 12 months, estimated profits were about $5 per head. In the next 12 months, that turns to expected profits above $15 per head, which would be the highest estimated returns since 2006 when corn prices were still low."

But even as profits increase, Dr Hurt said most producers are unlikely to expand their operations because there is still much uncertainty about world economic growth and the impacts on pork demand and feed prices.

"When corn prices can change 40 cents in one day, pork producers know the profit outlook can be altered quickly," he concluded. "If the current profit outlook holds over the next six months, then further expansion can be expected by the March or June USDA reports."

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