Weather is the key factor for 2013 profits

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Moisture and summer temperatures will be the key drivers for agricultural production profits throughout 2013, according to Steve Meyer, president, Paragon Economics, and U.S. pork industry analyst. Meyer’s comments were delivered Wednesday at the Iowa Pork Congress in Des Moines.

Meyer expects that U.S. farmers will plant “close to 100 million acres of corn in 2013,” he said. “If it rains, we could see corn prices between $4 and $5 per bushel-- if it does not rain, we could see corn at $8 per bushel.”

The U.S. economy, pork exports and international monetary exchange rates will also play important roles in determining profitability for pork producers, Meyer said. “Prices of competitive protein, especially beef, also will be key.”

Hog numbers and market weights will also affect producer profits. “December (USDA) swine inventories suggest no reduction in hog numbers, which surprised many in the industry. And, I do not expect any reduction in the breeding herd in the near future,” Meyer said.

There is no doubt that the on-going drought of 2012, which is now stretching its influence into 2013, has inflicted severe pressure on corn inventory levels. “Corn stocks are the lowest since 2004,” Meyer says. “We’re going to see very tight feed supplies through 2013 and there are going to be locations where pork producers may not be able to buy corn.”

Ethanol production, a major consumer of the nation’s corn crop, will continue to rise and influence producer profitability. The USDA predicts that the country will devote 4.5 billion bushels of corn for ethanol production in 2013. The Renewable Fuel Standard (RFS) will keep going up.

However, Meyer points out that demand for gasoline and ethanol may be leveling off and a change in the RFS mandate may be appropriate at this time. “But to do that, we would need to change the law.”

As a result of high corn prices, some ethanol production companies have shuttered plants, and as a result, the production of DDGS has been limited.

Soybeans also remain in very tight supply which increases the focus on the outcome of the South America’s crop production. Brazil may produce a bigger soybean crop than the United Sates for the first time ever.

Beef supply and prices may also be a major factor which may support pork prices. However, Meyer is concerned about the U.S. economy and consumers’ purchasing power. “People can’t afford to purchase as much meat because prices are at or near record levels, but higher beef prices should help pork demand.”

The picture on producer profitability all comes down to moisture levels, according to Meyer. “I don’t see how many producers would survive a dry 2013. We’re all betting on rain.”



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