Editor's note: The following Pork Signals article was originally featured in the September/October issue of PorkNetwork. Click here to read more from the issue.
The five most profitable months ever for U.S. hog producers have all been this year. Iowa State University calculations say that prior to 2014, the most profitable month for farrow-to-finish operations was September 1975, with an average profit of $64.68 per hog sold.
This year, each month from March through July had profits of more than $74 per head. Profits in both March and June were above $90/head, with July’s profit above $100 per hog. The record profits are driven by record hog prices and the lowest corn prices since 2010.
When will the string of profits come to an end?
Futures market prices for hogs and corn imply per-head profits will stay above $25/head for the rest of 2014 and stay in the black, but just barely, through the end of 2015. Eventually, profits will lead to herd expan - sion and lower hog prices.
The record hog prices of this spring deteriorated rapidly in midsummer. Iowa-Minnesota carcass prices peaked at $132.69/cwt on July 14. In less than 40 days, they were under $100/cwt. Why the steep decline? Low hog slaughter due to increased death loss caused by the PED virus created the need for record retail prices to ration the limited supply.
Retail pork prices aveaged $4.127 per pound during July. That was the fifth consecutive record month. High grocery store prices slowed consumer purchases of pork.
Hog slaughter started its typical seasonal increase in mid-July. Increasing pork supplies with slow sales in stores put downward pressure on wholesale values and, in turn, hog prices. Once retail prices start to decline, consumer purchases of pork should increase to capture the extra production that comes with fall.
Hog slaughter has a strong seasonal pattern. Aver - age daily slaughter almost always declines from late March until early July, then increases until Decem - ber. Once slaughter starts picking up in July, retail pork movement needs to accelerate or prices can get squeezed.
Because of increased death loss caused by the PED virus, hog slaughter may well stay below year-ago levels this fall. However, the weekly trend to higher slaughter means a downward trend in prices is likely.
Higher hog slaughter in the fall usually brings better margins for packers and retailers.
The PED virus has had a big impact on 2014 hog slaughter and prices. The data from the National Animal Health Laboratory Network says the number of positive tests for PEDv increased until it reached a peak in early February, then declined into summer.
The number of positive tests in early August were less than a third of the February peak, but were more than double that of August 2013. There are lots of heroic assumptions that must be made to go from data on positive PEDv lab tests to estimating pig deaths. But, if the increase and decline in the number of positive PEDv tests correlates with baby pig death loss, the February peak in positive test samples is likely to mean the shortfall in barrow and gilt slaughter will be the greatest in August, since most market hogs are slaughtered at six months of age.
Longer term, the key question is how much of a rebound in PED cases will occur this coming fall.