Big Corn Crop Not Big Enough
The third-largest corn crop in U.S. history is not big enough. Corn prices rose quickly this fall, driving up pork production costs. USDA is forecasting a market price of $5.20 per bushel for the 2010 corn crop. Worth a special note is the fact that a week before Christmas, all corn futures contracts through December 2014 were above $5 per bushel.
According to Iowa State University calculations, a live-hog price of $55 per hundredweight was needed for the typical pork producer to break even as of late 2010. Production costs on a live-weight basis are likely to remain in the upper $50s to low $60s for most of 2011. If 2011 hog prices match those of 2010, then the average profit in the coming year is likely to be quite small.
Long-term, the Trend is Up
The pork production business is a growth industry. Although it goes through cycles, production has grown at an underlying rate of 1.5 percent annually for the last 80 years. When pork production is above trend, as it was in 2008 and 2009, pork producers tend to lose money. Raising hogs is usually profitable when pork production is below trend.
In 2010, production was right on the 80-year trend, and USDA is forecasting only a 1.1 percent increase in pork production for 2011. The next time you wonder if there is a future in the pork industry, just remember this graph.
Be Wise about Pushing Weights
On average, improved genetics cause barrow and gilt weights to increase by nearly 1.5 pounds per year. Financial losses in 2008 and 2009, plus poor-quality corn during the 2009 harvest, helped hold hog slaughter weights well below trend during the last three years. Iowa/Minnesota barrow and gilt slaughter weights averaged 5 pounds below trend for 2008 to 2010. That changed abruptly this fall when hog weights jumped to record levels. Iowa slaughter weights averaged 5 pounds heavier by fourth-quarter 2010 than a year earlier. That was in large part due to the high quality of the 2010 corn crop.
If slaughter weights revert to trend, then heavier weights alone will cause 2011 pork production to exceed 2010’s level by 1.5 percent. Feeding fast-growing hogs is fun, but pushing weights higher when feed costs are well over 10 cents per pound isn’t always a good strategy.