Costs should decline this year

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Record corn and soybean meal prices in 2012 resulted in record cost of production for hog farms. Hog prices have been disappointing thus far in 2013 and hog futures for the rest of the year are trading well below January’s level. The good news for profitability is that feed costs have dropped.  Using current grain futures prices, it looks like the cost of raising hogs will decline rapidly as we move through 2013 with the breakeven price for hogs slaughtered in December more than $11/cwt lower than in January.

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USDA’s March hog survey indicates that producers plan to farrow 0.9% fewer sows during the spring quarter of 2013 and 0.8% fewer during the upcoming summer than during the same quarters in 2012. Since pigs per litter during the past year averaged 1% above the year-ago level, it is likely that both the spring and summer pig crop will be slightly larger than a year ago. Given the expected decline in feed costs, it is also likely slaughter weights in the second half of 2013 will average higher than last year. Cooler weather than last summer’s scorcher should also boost hog weights.   

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USDA has discontinued their reports on pork value based on voluntary packer reporting of wholesale pork sales. They are now reporting pork cutout value using mandatory packer price reporting rules. The voluntary wholesale cut price reports were FOB Omaha.  The new mandatory reports are FOB Omaha and FOB the slaughter plants. During the three-month period when both the voluntary and the mandatory reports were issued, the new FOB plants pork cutout averaged $3.95/cwt (4.9%) above the voluntary cutout. The new FOB Omaha cutout price series averaged $3.35/cwt (4.1%) above the voluntary cutout.       

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