The US National Daily 53 – 54 per cent lean hogs were under 80 cents per pound at the end of last week. Since the first of the year as the table below from Iowa State University it’s been a mugs game being a hog producer. This chart only goes to the end of March but since then nothing has happened in hog prices or costs to make it look any better.

Bottom Line: Trading dollars is no fun. We sense over the last few weeks what optimism there was in the hog market has waned. We expect that the enthusiasm that some had to build new sow units will be quite tempered. The producers left in this industry are survivors of too many hog cycles. As one pork industry executive put it ‘The women and children are dead, only the warriors survive.’

The flip side to the lack of swine farm profitability has been the massive equity growth in farmland values. Our farmer arithmetic calculates the 305 million crop acres – USA in 2011 with an estimate of farmland appreciation of $1000 per acre = $305 billion in appreciation – cut it in half = $150 billion. Either number is a massive creation of paper wealth. Whether it will be ever realized in cash is not that relevant, the feeling of wealth, borrowing power, and balance sheet strength and the profits from high grain prices is backstopping many in current hog operations.

The farmland equity surge is contributing to contract finishing barns being built in the mid west. Paybacks are not as good as they used to be, but when coupled with the fertilizer value of manure it is enough to get several barns built.

Canada like the US is seeing similar farmland value increases. Farm Credit Canada (FCC) is the farm primary lender in Canada. FCC recently released a farm value report. Current values reported indicate that the positive trend continues. Farmland values increased an average of 7.4 per cent January to June of 2011. July to December values continued to rise by 6.9 per cent. This continues the 10 year trend of steadily increasing farm values.

This profitability of grain and oilseed production we have seen globally is reflected in the crop planting intentions in Canada.

The totals indicate about 7 million more acres of crop to be planted in Canada in 2012 than 2011. There is more wheat, canola, barley, soybeans, corn, oats, peas, and flaxseed – more, more, more.

Where are the acres coming from? In 2011 12,410 million acres were summer fallowed. Most do to extremely wet conditions that kept land from being planted. In 2012 summer fallowed acres are estimated to be 3.970 million. There is a 7 million acre difference in crop intentions. So far this year Canada’s plantings are ahead of most years. In most commodities more supply usually means lower prices. Lower grain prices would certainly help swine cost of production be lower.

Summary

It doesn’t take a Rocket Scientist (or an economist) to know the hog industry is trading dollars. Hog prices of 80 cent lean and corn over $6.00 does not equal profits. It appears that the crop plantings in the US and Canada are getting in fast and with more total acres going to be planted. There is a real possibility of much lower feed prices in the fall. Until then it’s hang on and hope for a seasonal hog rally. It’s not too late but it better get started soon!