With an abundance of corn expected this growing season, the best friend of the corn grower will be the livestock producer. The motorist is not going to drive more because ethanol costs less to produce. Importers will have a wide choice of sources of cheap corn. So the fellow down the road with the hog barns will be one of the prime consumers of all of the corn between you and him. Get to know him and invite him over for some chops on the grill this summer.
Ironically, the corn grower has not been the friend of the pork producer for several years, since corn prices have resulted in a lot of red ink. So the pork producer will be happy to have the corn grower pick up the tab for socializing. With more corn coming available at lower prices, Purdue economist Chris Hurt says, “Pork producers can see the “promised land” of lower feed costs which will provide an extended period of profitability.” In fact those lower prices will be on the order of $2 less per bushel of corn and a $130 per ton drop in the price of soybean meal compared to the 2012 highs and the expected 2013 lows.
Hurt says the lower feed cost reductions should restore some degree of profitability to pork production, “Estimated total costs for farrow-to-finish hog production will drop from $69 per live hundredweight in the second quarter of 2013 to about $56 in the final quarter of 2013. The $13 drop being the largest on record.” Such a drop will be as welcome as the rapid increase in prices was unwelcome last summer. The drought shoved up feed prices unmercifully for livestock producers who had no opportunity to make any production adjustments.
Interestingly, the pork industry is not ready to buy into the lower feed prices until they see them, with a sort of show me the money attitude. The June 28 Hogs and Pigs Report indicated the producers who were surveyed were keeping immediate expansion plans on hold. Keep in mind that the data was collected at the first of June, when corn growers were still uncertain whether they were going to get to finish planting or seek a crop insurance payment for not planting. The latter would have curtailed corn production and kept prices high.
Hurt says the current plans that have been revealed by the industry indicate, “The size of the spring pig crop was unchanged from the previous year reflecting a status quo attitude in the industry. Summer farrowing intentions were also unchanged and fall farrowing intentions were up slightly. Given the increasing realization of better crop production, pork producers are expected to begin some modest expansion late this summer and especially in the fall of 2013. The industry is expected to be profitable at least through next summer.”
Part of the reason for profitability, says Iowa State University economist Lee Schultz is the improvements in production efficiency. He says, “The March-May pig crop, at 30.1 million head, was up 0.11%. This was the largest March-May pig crop in the history dating back to 1973. The industry continues to realize tremendous progress in efficiency as producers have been able to increase pig crops while decreasing the breeding herd as a percent of the total hogs and pigs inventory. In fact, the March-May pigs per litter set a new all-time record high at 10.31, a 2.18% increase from the previous year.” But he says the future pork supply will depend on the rate of farrowing later in the summer, and currently the intentions are up 1%.
Later in the summer, pork production will take a step up says Schultz, in part with the help of higher litter rates, “Projecting farrowing intentions out with projected commensurate pigs per litter it looks like the potential is there for a new record high for the June-August pig crop at 29.9 million head. The September-November pig crop, with such a large year/year increase in sows farrowing intentions, makes a projection of 29.9 million head also a new record high. Overall, the take-home contribution is pig crops remain and project to be very large compared to historical levels, in fact, at or close to record highs.”
Based on the expected increase in slaughter rates, Schultz forecasts prices at $89-95through September, $77-83 from October through March, and $86-$90 for April through June of 2014. Hurt says, “The bottom line is that losses of $21 per head during the last 12 months give way to projected profits of $16 per head in the 12 months spanning the last-half of 2013 and the first-half of 2014. In the longer-run, producers will want to examine the yet to be answered question of where feed prices will settle. Corn prices under $5.50 per bushel could stimulate some expansion. The further below $5.50, the greater the expansion stimulus.
With the prospect of lower corn and soybean meal prices, pork producers are anticipating a return to profitability when those prices would be available from the new crop. Until then expansion of production is more on paper than in the farrowing barns. But when expansion does occur growth in production will be driven more by increased number of pigs per litter than by increased number of sows farrowed.