Editor's note: The following article was originally published in the May 2015 issue of Pork Network.
It has been a disappointing year for hog producers. At times, April hog prices were half of the year-ago level. Carcass prices in Iowa and Minnesota averaged $118.19/cwt in April 2014 with a peak of $129.72/cwt. This year, April prices dropped below $57/cwt at the low. The pork cutout value was also down by half. On some days, pork belly prices were less than a third of the year-earlier level. Lots of factors contributed to the price decline, but increased hog slaughter and reduced exports were the two big ones. First quarter commercial pork production totaled a record 6.16 billion pounds, up 6.5 percent from last year and up 2.3 percent from the first quarter production record set in 2008. Despite a big increase in pork production, USDA is forecasting a 2.2 percent decline in 2015 pork exports.
There has been a dramatic change in hog slaughter during the last six months. Hog slaughter was down 4.6 percent in 2014, but it has rebounded in 2015. Through April, hog slaughter was nearly 7 percent above the 2014 pace. There are few signs of a slowdown ahead. The market hog inventory in USDA’s March hog survey implied that daily slaughter will be up roughly 9 percent in the third quarter. Typically, this type of run up in hog numbers is the result of good profits and increased farrowings. This time, an equally important cause was more pigs per litter.
This year’s upturn in hog slaughter was driven by a return to normal in pigs per litter. During the winter of 2013-2014, Porcine Epidemic Diarrhea virus (PEDv) caused the biggest decline in litter size on record. Pigs per litter were down 6 percent or more during each of the first three months of 2014. From 2007 thru 2013, pigs per litter increased at an average annual rate of 1.6 percent per year. From October 2013 to September 2014 pigs per litter declined at a rate of 3.2 percent per year. That was a shortfall of nearly 5 percent compared to trend. During this past winter, pigs per litter averaged 10.17 head, 6.7 percent higher than a year ago and the highest ever for a winter quarter. Pigs per litter were down for 11 consecutive months starting in November of 2013. Unless the PEDv make a strong comeback soon, pigs per litter are likely to be up by far more than the 1.6 percent trend rate through June.
Last year was the most profitable ever for U.S. hog producers. Calculations by Lee Schulz at Iowa State University estimated the average profit for farrow to finish operations at $61.85 per head. More hogs and lower hog prices mean 2015 profits will fall far short of last year.
Hog slaughter is expected to be up 6 percent or so in 2015 to the second highest total ever. Barrow and gilt slaughter weights dropped below the year-ago level in late March. Less space per pig in barns and lower profit margins are likely to keep weights down for the rest of the year.
There was red ink for several weeks this spring. Using current hog and corn futures prices as a guide, it looks like producers will earn modest profits during the next 18 months. Red ink could return much sooner if the weather turns dry this summer causing a spike in feed costs. The ability to manage PED is another unknown that could have a big impact on profits. Because of a strong dollar, foreign demand for U.S. pork is expected to be less than in 2014.