Record shattering feed costs have put many hog farms in a precarious position—especially operations that do not raise corn or are not able to capture the nutrient value of hog manure. Are there any rays of hope?
Pork producers’ profit outlook for at least the rest of 2008 has gone from bad to worse the past two weeks. Flooding in some key corn and soybean growing areas has raised more concerns about corn growers’ ability to satisfy what was an expanding demand base. The corn market is now well into the price rationing process and as is true whenever supply/demand fundamentals get badly out-of-whack, it’s a painful process for half of the participants.
At a time when the corn market needs every bushel it can get, it is estimated between two and three million acres of farmland intended for corn production will either go unplanted, get planted to soybeans or will produce very low yields.
USDA will update its planted acreage estimates on June 30, but that report will not provide a clear picture since most of the flooding occurred after the survey work had been completed. New acreage data is already being gathered for six states in the heart of the Corn Belt. The market is also trying to access how much yield potential this year’s crop has left and will be watching closely for more signs high prices are curtailing usage.
Unfortunately, the hard reality for hog producers is that costs will remain high for at least another year. Because it will take time for usage to realign itself with available supplies, the floor underneath feed prices has been raised significantly. And it looks like it will be sometime next year before market hogs are worth enough to cover the average cost of production.
The June hog report is scheduled to be released the day this issue goes into the mail. This quarterly update is not expected to show a dramatic drop in sow numbers—probably about a 2% reduction—but there is anecdotal evidence the pace of liquidation has picked up since mid-June when corn futures shot above $7.
One of the key numbers to check out in this particular report is the spring pig crop estimate. USDA’s March survey pegged March/May farrowings at 0.5% more than a year earlier. Because USDA’s surveys have consistently underestimated hog production the past several quarters, it’s very possible spring farrowings were up more than that. Add in the normal 1% increase in pigs weaned per litter and fall marketings could be up 3% or so from the record-breaking totals recorded last year. In other words, the hog market has more big numbers to wade through before supplyside relief arrives.
On the positive side, the market is doing an admirable job dealing with record production. Pork tonnage year-to-date is up 9.7%, yet cash prices are just slightly lower than a year earlier and the wholesale value of a pork carcass is the same as a year ago. This speaks well for demand.