Despite this being one of the most profitable periods ever in the U.S. pork industry, the recent USDA Hogs & Pigs Report did not indicate that expansion was taking place.
Kevin Bost, president of Procurement Strategies, in Des Plaines, Ill.; Dr. Chris Hurt, professor in the Department of Agriculture Economics at Purdue University, Lafayette, Ind.; and Victor Aideyan, senior analyst with Hisgraiincommodities.com, in London, Ontario provided insights in a teleconference hosted by the National Pork Board on June 27.
Steve Meyer, president of Paragon Economics, reviewed the numbers provided in the report. He said that the breeding herd is relatively stable, and the March-May pig crop is being “watched closely” at 26.371 million. In addition March-May litters were down sharply at 2.979 million litters and in what is not too surprising, the number of March-May pigs saved per litter was 9.78, down 5 percent from the last report.
“We really saw profitability begin to pick up in Sept. 2013,” says Hurt. “We thought we’d see some expansion showing up, but this report says, no, that is not the case. The other surprise is Mar-May farrowings. We expected intentions to be up a couple percent, but instead it is down fractionally, so it is indicated no expansion.”
Porcine Epidemic Diarrhea virus (PEDv) is likely the culprit in some of the numbers. PEDv is not under control yet and death loss is continuing,” adds Hurt. “Warm months have reduced it but we aren’t under control yet.”
“Profitability has been quite good for almost a year now,” says Bost. “I have the utmost respect for USDA’s numbers and their comprehensive analysis, but for the first time in my career, I can say there’s something here that doesn’t really make sense: I can only find one other year in which the December-February farrowings declined at all, and I’m not believing that the Mar-May farrowings were actually down 5 percent.”
One factor that may impact the numbers is the transition from traditional gestation stalls to pens. Several large integrators have made the commitment to switch to modified housing options and as a result, their gestation barns hold fewer breeding animals. Furthermore, the moratorium on new swine facilities is still in place in North Carolina.
While fewer pigs are going to market, they’re heavier than last year by about 10 pounds/pig. That means the impact to retailers is less than it could have been, so prices are still competitive compared to beef and chicken.
“Weights are approaching 5 percent higher than a year ago and weights won’t change until profitability changes,” says Bost. “There certainly will be shortage of hogs but not as big a shortage of pork supply.”
“There is a lot of compensation on heavier pigs so pork supply isn’t down as much as hogs are,” adds Hurt.
Will It Last?
The livestock economists feel the good times will continue for awhile, especially if the weather cooperates to allow for what is shaping up to be a very good year for corn and soybean production.
“If producers want to make money, the numbers are telling us that we should market as much as we can in the July-early August time frame,” says Aidayan. He sees very strong prices in the third quarter, with July carcass prices averaging $124-126. He feels fourth quarter prices will average between $98-102 carcass, and for the first quarter next year, producers should expect carcass prices to be $96-100.
“We have never-before seen opportunities in the industry,” he says. “Producers could do some serious hedging.”
Hurt says producers have the potential to see profitability of $90 per head this summer, which would be at a level never seen before. “In regard to weights, the cost of putting on a pound of live weight is about $.50, so every pound they put on is providing enormous returns. Some dynamics on weights will be pretty important in the next several months,” he says. His price averages are $91/cwt live for the third quarter, and $74 for the fourth quarter of 2014. He thinks it would be difficult to believe that producers wouldn’t take the profits being generated now and get into the expansion business.
“There is going to be a lot of income for pork producers so it’s not too early to be thinking about income tax management,” says Hurt.
Bost feels prices will head down to the $100-105 range in October, with the cash market peaking out now and dropping to about $95 in December. He says, “Given the basic direction of the hog supply and the hog market, why wouldn’t you want to lock in some of these profits?”