A reported U.S. inventory of 68.395 million hogs and pigs Sept. 1 sent a clear signal the industry had bounced back from the deadly Porcine Epidemic Diarrhea virus (PEDv) outbreak of 2014, leading agriculture economists said Friday.
The U.S. Department of Agriculture’s third-quarter Hogs and Pigs Report released Friday had economists who participated in the National Pork Board’s teleconference optimistic about the industry’s potential for growth in 2016.
The nearly 68.4 million inventory – as well as the average pigs per liter of 10.39 – reported in the third quarter were new record highs, Steve Meyer, vice president of pork analysis for Express Markets Inc. Analytics, Fort Wayne, Ind., said in highlighting some of the key numbers to open the teleconference.
The third-quarter total inventory of all hogs and pigs was up 4 percent from Sept. 1, 2014, and up 2 percent from June 1, 2015. It’s the highest inventory of all hogs and pigs since quarterly U.S. estimates began in 1988, according to the USDA report. To read the full USDA third-quarter report, click here
The productivity gains cited in the report, particularly the record pigs per liter, signaled “really a victory over PEDv, in a very strong recovery,” Dr. Chris Hurt, professor of agriculture economics at Purdue University, West Lafayette, Ind., said.
Victor Aideyan, senior analyst with Hisgrain Commodities, London, Ontario, and Ames, Iowa, concurred with Hurt’s assessment.
“I think the numbers highlight the fact the U.S. hog industry has continued to increase its productivity and has to a large degree – it seems so far at least – overcome the PEDv effects that we had last year,” Aideyan said. “That’s good for the industry to put behind what was a very difficult health issue last year.”
Meyer and Altin Kalo, market analyst with Steiner Consulting Group, Merimack, N.H., said the numbers in the USDA report offered no real surprises.
“The numbers are fairly close to what analysts expected, and I think when the markets open Monday the report will be viewed as neutral to slightly bearish,” Kalo said Friday.
The report, however, provided further evidence of the potential for industry growth in the coming year, the economists said.
“What we see as we go forward is an industry that has expanded about as much as it can without getting into losses,” Hurt said, referring to the growth as a disciplined expansion. “This is a rare event for an economist when supply and demand are reasonably in equilibrium at a price level that allows all costs to be covered.”
Forecasting slightly higher corn prices and lower soybean meal costs in 2016, Hurt predicted producers would end 2015 very close to break-even – also known as a normal return – for all assets deployed in the operation, including full depreciation on equipment and buildings and full recovery of labor costs.
“In 2016, we’ll see some break-even overall,” Hurt said. “We’ll see some profitability in the second and third quarter, and see some modest losses in the first and fourth quarter – which is pretty traditional for those cooler weather months to see lower hog prices.”
Hurt predicted market prices, based on the national lean base price, would be $63 in fourth-quarter 2015, followed in 2016 by $64 (1Q), $73 (2Q) and $71 (3Q). Aideyan’s forecast was slightly more bearish, with his predictions coming in at $61, $65, $66 and $68 for the same four quarters, respectively.
Aideyan pointed to the influence exports have on the marketplace as one caveat in predicting prices and profitability.
“With the structure of our markets these days, we are exposed to export markets and the impact of any kind of trading on that side,” he said.
“Going into the fourth quarter, we tend to have losses … historically it’s the largest exposure to losses,” Aideyan said. “We have had a rally in the last six weeks or so, and it still gives us an opportunity to do some hedging. Producers still should consider partial hedges, if they have not done so already going into the last quarter of this year.”
The potential for profitability exists in 2016, Kalo said.
“As long as producers stay disciplined and continue to grow within their capabilities and do not try to over-reach, there is an opportunity there to respond to market demands for pork and produce pork at levels that still generate a profit,” Kalo said. “We’re not going to have a repeat of 2014 with record profits, but I think the profits that are there are good enough to allow producers to continue to bring pork to the American consumer.”