Editor's Note: The following article was featured in the November/December issue of PorkNetwork.
The cost of raising hogs is falling fast. Both the 2014 corn crop and soybean crop are the largest ever. U.S. corn prices in September were half those of September 2012. Since feed typically makes up nearly two-thirds of the cost of hog production, the big drop in corn prices is bringing down cost of production. Iowa State University calculations by Lee Schulz estimate cost of production peaked at $74.13/cwt live for hogs marketed in January 2013. By the start of 2015, production cost should be close to $50/cwt. The futures market is predicting a rise in corn prices following this fall’s harvest, so the breakeven hog price should be slightly higher by mid-2015.
Porcine Epidemic Diarrhea virus (PEDv) has been a dominant force in this year’s hog market. It has been estimated that between 5 and 10 million pigs have died from PEDv infection in the past year. Pigs weaned per litter have dropped sharply. During 2008-2012, pigs per litter increased at an average rate of 1.8 percent per year, but PEDv first pushed the national average for pigs per litter below the year-ago level in November 2013. USDA says that year-over-year pigs per litter were down more than 6 percent during the first quarter of 2014, down 5 percent in April, down 2.2 percent in June and down between 1 and 2 percent in July and August. If PEDv is less deadly this coming winter, then pigs per litter could be sharply higher in the first quarter of 2015 than it was a year earlier, yet still be below the long-term trend.
Hog profits have been fabulous this year. As expected, the sow herd is expanding. The September inventory survey found producers expecting to farrow 4 percent more litters this fall and 3.8 percent more litters this winter. Past cycles indicate hog slaughter typically goes above the year-ago level roughly 15 months after hogs become profitable. January 2014 was the first profitable month in the current boom period. Fifteen months later will be April 2015. Both the September pig report and the long-term cycles predict increased slaughter starting next spring.
Pork prices reached record levels in 2014. Starting in March, there were seven consecutive months with record retail pork prices. On a carcass weight basis, barrows and gilts are expected to average around $103.50/cwt this year. That is more than $15 above the previous annual price record set in 2011. The outlook is for more pork but lower prices in 2015. USDA is predicting 5.1 percent more pork and 1.1 percent more competing meats will be produced by U.S. farms next year, and that will likely bring down hog prices. The futures market expects net carcass hog prices to average in the area of $90/cwt through August 2015, then drop into the mid to lower $70s for the fourth of 2015 and the first quarter of 2016.