U.S. pork producers have quickly changed production plans in response to record-high feed prices that appear to be on the horizon for some months to come, but profitability will remain out of reach, according to analysts dissecting USDA’s September Hogs and Pigs Report.
“There’s nothing but red ink this year and well into 2013,” says Ron Plain, University of Missouri agricultural economist. “June may have some profitable hogs sold, but there will none in the next seven months.”
The dilemma is not driven by burdensome supplies creating weak hog prices, but rather dramatically high production costs driven by high corn and soybean meal prices. “I am not very optimistic about profitability because of corn prices,” says Altin Kalo, chief economist with Steiner Consulting Group, Manchester, N.H.
Kalo and Plain offer their price projections based on the Iowa/Minnesota market, carcass-based pricing (per hundredweight):
4th quarter 2012 $76 $74
1st quarter 2013 $83 $79
2nd quarter $97 $93
3rd quarter $99 $93
4th quarter $87 $84
The one ray of positive news can be found in the pig crop report’s market weight categories. While the heavy-weight category (180+ pounds) is reported up 5 percent from a year ago, those pigs have pretty much have already moved on to market. The other categories show a drop off in marketings—179 pounds to 120 pounds = up 1 percent, and 119 pounds to 50 pounds = down 1 percent from year-ago levels.
“We had tremendous slaughter runs over the last several weeks,” Plain notes. Over the past seven weeks, hog slaughter ran 5.3 percent higher than for the same period in 2011, and 4.3 percent higher than the June hog inventory report projected. But USDA’s September report confirms that producers have pulled hog marketings forward to temper high feed costs. That’s further supported by the fact that Iowa/Minnesota market weights have recently dropped below year ago levels for the first time since November 2011, Plain adds.
“That’s good news for the rest of this quarter, it could provide an opportunity for hog prices to rebound a bit,” he says.
Still, any good news is short lived. “A lot of folks are going to have to curtail their operation if not get out,” says Kalo. “Corn is the big driver in making decisions and the risk and amount of losses they’ve already seen will make decisions hard.”
Indeed, losses could continue to run $50 per hog through the fourth quarter, Plain says. Looking to 2013, he says losses could recover to $25 per pig, but it could be the third quarter before profits of $10 per head or better return to the scene.
Key to profitability, Kalo notes, is the export market. “The wildcard is exports. We export more than 20 percent of our product (annually); that has to continue to help profitability return,” he adds.