With an abundance of corn expected this growing season, the best friend of the corn grower will be the livestock producer. The motorist is not going to drive more because ethanol costs less to produce. Importers will have a wide choice of sources of cheap corn. So the fellow down the road with the hog barns will be one of the prime consumers of all of the corn between you and him. Get to know him and invite him over for some chops on the grill this summer.
Ironically, the corn grower has not been the friend of the pork producer for several years, since corn prices have resulted in a lot of red ink. So the pork producer will be happy to have the corn grower pick up the tab for socializing. With more corn coming available at lower prices, Purdue economist Chris Hurt says, “Pork producers can see the “promised land” of lower feed costs which will provide an extended period of profitability.” In fact those lower prices will be on the order of $2 less per bushel of corn and a $130 per ton drop in the price of soybean meal compared to the 2012 highs and the expected 2013 lows.
Hurt says the lower feed cost reductions should restore some degree of profitability to pork production, “Estimated total costs for farrow-to-finish hog production will drop from $69 per live hundredweight in the second quarter of 2013 to about $56 in the final quarter of 2013. The $13 drop being the largest on record.” Such a drop will be as welcome as the rapid increase in prices was unwelcome last summer. The drought shoved up feed prices unmercifully for livestock producers who had no opportunity to make any production adjustments.
Interestingly, the pork industry is not ready to buy into the lower feed prices until they see them, with a sort of show me the money attitude. The June 28 Hogs and Pigs Report indicated the producers who were surveyed were keeping immediate expansion plans on hold. Keep in mind that the data was collected at the first of June, when corn growers were still uncertain whether they were going to get to finish planting or seek a crop insurance payment for not planting. The latter would have curtailed corn production and kept prices high.
Hurt says the current plans that have been revealed by the industry indicate, “The size of the spring pig crop was unchanged from the previous year reflecting a status quo attitude in the industry. Summer farrowing intentions were also unchanged and fall farrowing intentions were up slightly. Given the increasing realization of better crop production, pork producers are expected to begin some modest expansion late this summer and especially in the fall of 2013. The industry is expected to be profitable at least through next summer.”