If you are raising hogs, or have a link in the US pork production machine, how different were your intentions from those of your fellow pork producers whose plans were published in last week’s Quarterly Hogs and Pigs Report?  There will be a slight expansion in the breeding herd, and there was not a surprise in that, unless it was due to the timing.  After all, the data for the report was collected prior to the freefall in the corn market.  Had the data been collected a month later, there might have been a larger plan to raise more hogs.  It all has to do with the price of feed, and that is our focus today.

“Finally, pork producers have some positive news that has increased optimism for greater profitability in the coming year.”  That is the contention of Purdue economist Chris Hurt who says the pork industry indicated there would be only a slight expansion and at the same time the price of corn would be declining.  He says, “The combination of stronger hog prices and lower feed prices has put the pork outlook back into solid black for the coming year.”

The USDA report indicated the breeding herd was only 0.6% more than it was September 1, 2010, and the market hog inventory was up only 1%.  At the University of Missouri, livestock economist Ron Plain observed that USDA’s estimates called for the number of sows farrowing will be down 0.2%, but the number of farrowings will be up by 0.5%.  Plain says if the number of sows that farrow this winter is higher than year earlier numbers, it will be the first time that has happened since the spring of 2008, “I am predicting 2012 hog slaughter at 112 million head, up 1.6% from this year.”  He went on to say, “All the key report numbers were higher than the average of the pre-release trade forecast, yet the futures market held steady to higher this week. Either this indicates traders don’t agree with the pre-release forecasts or are optimistic about meat demand. China appears to be buying a lot of U.S. pork.”

At USDA, after the report was released, the economists said corn prices were still too high for many hogs to be fed, “High feed costs are expected to reduce the weights at which live hogs are marketed for slaughter for the remainder of the year and through 2012. Lower slaughter weights are forecast to marginally reduce pork production during this period.”  That analysis is from USDA’s Monthly Livestock Outlook, which went on to report, “Declining output prices, concurrent with increasing costs of major feed inputs, spell narrower spreads between the cost of feed and the selling price of finished hogs. While producers’ estimated quarterly feed cost spreads remain positive through 2012—calculated with USDA forecast prices of corn, soybean meal and hogs—spreads will narrow for the fourth quarter of 2011, and spreads for the first three quarters of 2012 are below those of 2011.  Hog producers are likely to respond to lower feeding spreads by reducing the weights at which they market hogs for slaughter.”

That is a bit different than the analysis provided by Chris Hurt at Purdue.  He said, “While pork production will be higher in the next 12 months, hog prices are expected to be higher, led by strong demand. The stronger demand will come from very low levels of beef available in the domestic market and from continued growth in pork exports.
In the last 12 months, live hog prices averaged about $62 per hundred pounds with a forecast of $66 for the next 12 month period. Feed costs are expected to be lower over these two periods as well, with lower corn and soybean meal prices. Total feed costs are forecast to be about $1.75 per hundred lower in the coming 12 months.”

Both USDA and Hurt are within the same ballpark when it comes to prices expected to be paid to producers.  “Fourth-quarter pork production is anticipated to be 6.1 billion pounds, about 1 percent below the same period last year. Prices for live equivalent 51-52 percent hogs are expected to average $70-$71 per cwt in the third quarter, about 17 percent above a year ago.  Fourth-quarter prices are expected to be $60-$64 per cwt, almost 24 percent above the same period last year.

Hurt says if profits hold, then expansion cannot be far behind.  “If the current profit outlook holds over the next six months, then further expansion can be expected by the March or June reports in 2012. Prospects for a return to normal yields in 2012 provide the likelihood for further moderation in corn prices in the fall of 2012. This would also be considered as a positive prospect which would encourage further expansion by mid-and-late 2012.”

The latest Hogs and Pigs report did not indicate much expansion activity for pork producers, however, their estimates were sought before there was much of a decline in the corn market.  While some livestock economists anticipate greater expansion because of lower feed costs, others are expecting less hog weights because of the high cost of gain.

Source: FarmGate Blog