Strong prices, but higher expenses

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Hog prices last year were the second highest of record after 2011. Yet, the typical producer lost over $12 per hog marketed. The reason, of course, was high feed cost.  Corn prices averaged a record $6.67/bu. in 2012. Soybean meal prices also set a record.       

Iowa State University calculations put the average cost of producing a slaughter hog in 2012 at $68.16 /cwt of live weight.  This was $3.14 above the year before and up $21.12 from five years earlier. This year started no better with a January breakeven of $74.13/cwt, the sixth consecutive record month. This year’s hog prices are expected to be higher than in 2012 but lower than in 2011. The key to profitability is the weather.  Summer rains could well get us a record corn crop, a $2 drop in corn prices and a $12/cwt decline in breakeven prices. If it doesn’t rain, losses of $15 to $20 per head are likely.

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Look for a Change in Exports due to Trade Restrictions

Pork trade has been a big plus in recent years. U.S. pork exports were record high in 2012 for the second consecutive year. Last year, the United States exported $55.87 worth of pork and pork by-products for each hog we slaughtered. For the last eight years, the United States has been the world’s largest pork-exporting country and we are gaining market share. In 1993, about 11 percent of the pork moving in international trade originated in the United States; last year, one-third did. In 1993, 20 percent of world pork trade came to this country; last year, a bit over 5 percent did.  However, U.S. pork exports may decline this year. Both China and Russia are placing restrictions on U.S. pork because we feed ractopamine as a growth promotant. In 2012, 17 percent of U.S. pork exports went to China or Russia. 

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U.S. Economy Needs to Improve

The domestic market is crucial to pork producers. Over three-fourths of U.S. pork production is consumed in the United States. Unfortunately, the U.S. economy has been slowing down for several decades. Inflation adjusted economic growth averaged only 2.1 percent during the last three years. Slow growth means high unemployment rates and consumers with limited disposable income. Neither is good for meat demand. Pork has an advantage of being a lot cheaper than beef, but it is a lot more expensive than beans and rice. Another area of concern is energy prices.Gasoline prices were higher in February 2013 than for any preceding February. More money spent at the pump leaves less to spend in the grocery store.    

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