Posts

Showing posts with the label Pork

The Pace of Soybean Use

by Todd Hubbs, Agricultural Economist - ILLINOIS Extension
Iink to farmdocdaily article

USDA’s soybean ending stocks forecast of 425 million bushels for the marketing year may show little if any change in the upcoming WASDE report. Despite the recent strength in soybean crush, the current focus is squarely on the impacts of the coronavirus and the implications for both crush and exports as the disease continues to evolve.


University of Illinois ag economist Todd Hubbs discusses the impact coronavirus is and may have on the use of soybeans across the planet.

Soybean crush in January saw a record total for the month of 188.78 million bushels. Thus far this marketing year, crush set monthly records in October, December, and January. Even with those monthly records, the crush pace during the first five months of the marketing year, at 897 million bushels, equaled last year’s pace. The USDA’s current projection for crush indicates a 13 million bushel increase over last year. To reach the crush forecast, crush needs to total 1.2075 billion bushels over the remainder of the marketing year. Soybean crush at that level comes in higher than last year’s 1.194 billion bushel total over the same period. The recent strength in crush led many market observers to raise the prospects for soybean crush totals. The implementation of higher export taxes on soybean products in Argentina helped to bolster this narrative. While soybean crush may see an increase in marketing year use, the prospect of coronavirus issues hurting meat demand may limit the upside potential later in 2020.

Soybean meal prices in Decatur rallied from the low $290 per ton range in early February to settle near $305 last week, which coincides with the marketing year average price put forth in the February WASDE report. The forecast for domestic soybean meal use sits at 36.8 million short tons, up 708 million tons over last year. Plentiful livestock on feed supports strong domestic soybean meal use this marketing year. However, the spread of the coronavirus around the world may put a damper on meat consumption. The prospect of lower meat consumption in the U.S. remains a serious concern. At 13.2 million short tons, the forecast for soybean meal exports came in 354 million tons lower than last year. Soybean meal exports weakened significantly in January and put the pace of exports through January seven percent behind last year’s export total at 4.576 billion short tons. Total commitments through February 27 sit a little over six percent behind last year’s pace. If the expansion of export tariffs on soybean meal in Argentina impact exports, the pace of meal exports could increase.

Soybean oil prices in Decatur fell back to levels seen last September in recent weeks at between 28 and 30 cents per pound. Vegetable oil prices remain under pressure from the impacts of coronavirus spreading around the world. As Chinese crushers come back online, an expectation of growth in world soybean oil stocks over the short term seems a forgone conclusion. Weaker biodiesel production led to a decrease of 300 million pounds in the February WASDE report to 8.2 billion pounds. Through December, the EIA biodiesel production report put soybean oil use at 1.625 billion pounds, down 545 million pounds from the first quarter last year. Biodiesel production from soybean oil needs to increase by fifteen percent over last year for the remainder of the marketing year to hit the USDA’s forecast. Soybean oil exports continue to exhibit strength and provide a counterbalance to relatively weak domestic demand. At 1.9 billion pounds, the USDA’s forecast for soybean exports seems well within reach this marketing year. Census Bureau soybean oil exports through January came in at 809 million pounds. To reach the projection, soybean oil exports need to total 1.09 billion pounds over the rest of the marketing year, 110 million pounds less than the total over the same period last year and hints at an increase to the forecast for soybean oil exports this marketing year in the next WASDE report.

The large Brazilian soybean crop and the potential for expanded Chinese buying continue to be the main factors shaping the potential for soybean exports. USDA projections for soybean exports total 1.825 billion bushels. Estimates of soybean exports from the Census Bureau are available through January. Soybean exports came in at 1.02 billion bushels. As of March 5, cumulative export inspections for the current marketing year totaled 1.107 billion bushels. By using the relationship between Census Bureau data and export inspections, soybean exports total 1.153 billion bushels for the marketing year. Soybean exports need to equal 672 million bushels, approximately 26.3 million bushels per week, during the remainder of the marketing year to reach the USDA forecast. Over the last four weeks, export inspections averaged 26.1 million bushels per week.

A Brazilian crop near 4.6 billion bushels looks in the offing this year. A large crop in combination with a Brazilian real that depreciated almost fifteen percent against the dollar since the turn of the year promise competition from Brazilian soybeans in 2020. Chinese buying of U.S. soybeans remains the key to hitting export projections. For now, Chinese total commitments (export sales and accumulated exports) through February 27 sit at 449 million bushels, up from 344 million bushels over the same period last year. Census Bureau data through January showed soybean exports to China at 431 million bushels thus far this marketing year. The small growth in exports since January highlights the low level of buying from China since the onset of the coronavirus. The recent exemptions on U.S. soybean tariffs granted for some crushers in China provide support to the notion of China attempting to meet its commitments to the Phase 1 trade deal.

Uncertainty about the impacts of coronavirus looks to set market expectations over the near term. Soybean prices will reflect this uncertainty. Volatility appears set to remain high and developments in soybean product export markets seem destined to determine ending stocks this year.

IFES 2017: Crop and Livestock Price Prospects for 2018

read farmdocDaily article

by Todd Hubbs, Commodity Markets Specialist - University of Illinois

CROPS

Crop prices will remain below the high levels seen in the early part of this decade due to large global inventories. Global economic growth continues to build on the momentum seen over the last year. Growth in China and emerging market in Asia is projected to remain strong throughout 2018. The prospects of improved growth support commodity demand, but the significant changes to trade policy could mitigate some of this demand growth in export markets. Lower prices are expected to continue in 2018 barring a shortfall in one of the major production regions. The following price outlook analysis assumes a good 2018 growing season.

Corn prices continue to struggle with large crops and five consecutive years of growth in ending stocks. Domestic corn demand continues to see moderate growth in corn used for ethanol which has been supported by record levels of ethanol exports. Growth in livestock production and low corn prices provide support for increased feed usage during the 2017–18 marketing year. The potential for greater than 5.5 billion bushels in feed and residual use would be the largest amount since 2007–08. Corn exports currently lag the pace of last marketing year’s 2.29 billion bushels and are projected at 1.95 billion bushels by the end of the current year. Planted acreage of corn is expected to increase slightly in 2018 to 90.8 million acres. Assuming a trend yield near 172.3 bushels would result in a 2018 crop near 14.4 billion bushels. A projected total use of 14.5 billion bushels would result in the 2018–19 marketing year ending stocks near 2.44 billion bushels, a slight decrease from 2017–18 projections. Prices are expected to average near $3.30 during the current year and near $3.40 during the 2018–19 marketing year if production develops as expected.

Soybean prices remain strong relative to corn and wheat prices. U.S. soybean ending stocks continue a five-year pattern of growth with 2016–17 ending stocks ending at 301 million bushels. The lower than initially projected ending stocks benefited from very strong export numbers driven by continued growth in exports to China. Soybean exports are projected to exceed 2.2 billion bushels during this marketing year, up from last marketing year’s 2.174 billion bushels. Expanded soybean acreage and a 49.5 bushel yield for the 2017 crop are expected to increase 2017–18 marketing year ending stocks to 480 million bushels. Planted acreage of soybeans is expected to increase moderately to 90.6 million acres in 2018 due to the low prices of corn and wheat and the lower cost of producing soybeans relative to corn. A yield near 48.5 bushels would result in a 2018 crop about 52 million bushels smaller than the 2017 crop. With total use projected at 4.32 billion bushels, a further increase in U.S. stocks is expected by the end of the 2017–18 marketing year. Prices are expected to average near $9.20 during the current year and near $8.80 during the 2018–19 marketing year if world production develops as expected.

U.S. wheat acreage is expected to continue declining. Planted acreage decreased to 46.01 million acres in 2017. U.S. wheat production decreased by 508 million bushels in 2017 with average yield down by 6.3 bushels per acre. Soft red winter wheat production decreased to 202 million acres on 230,000 fewer acres nationally. Soft red winter wheat production is down 49 percent from 2010–2017 in Illinois. During the same period, wheat acreage in Illinois declined by 450,000 acres. World wheat production in 2017–18 is expected to decline slightly from the record levels of 2016–17. Foreign wheat production is expected to increase for the fifth consecutive year. U.S. stocks of wheat in all classes are projected to decline to 935 million bushels after hitting 1.18 billion bushels in 2016–17. U.S. soft red winter wheat ending stocks are expected to grow by 7 million bushels in 2017–18. The average price received for the 2017 crop is expected to be near $4.60. The Illinois price at harvest is expected to be near $4.75.

LIVESTOCK

Livestock markets continue to respond to the growing demand for meat globally and lower feed costs. Prices in the livestock sector look to level out after declining from the highs seen in 2014 and the subsequent supply response. Production levels are expected to increase in 2018.

U.S. beef production is expected to increase 4.6 percent in 2018 on higher levels of feedlot placements in last half of 2017 and the beginning of 2018. Beef production is forecast at 27.6 billion pounds in 2018, up 1.2 billion pounds over 2017. Beef export markets continue to exemplify U.S. competitiveness in foreign markets. Exports are projected at 2.97 billion pounds, up from 2.85 billion in 2017. Recent strength in export markets has been driven by strong demand from Japan. Domestic per capita beef consumption is projected to increase in 2018 to 59.2 pounds, up 1.9 pounds from 2017. Strong demand in 2017 moved cattle through feedlots at a rapid pace. Fed cattle prices look to move lower in the first half of 2018 on large supplies. Fed cattle prices average near $122 in 2017 but look to average near $117 in 2018. Feeder steer prices averaged $145 in 2017 and are projected to be around $142 in 2018.

U.S. pork production is projected to increase in 2018 to 26.9 billion pounds, up 1.2 billion pounds from 2017. Delays in hog slaughter levels in the fourth quarter of 2017 are projected to push first quarter pork production in 2018 up 4.7 percent of 2017 levels. Pork exports in 2018 are expected to increase from the 5.6 billion pounds exported in 2017 to 5.9 billion pounds. While increased exports to Mexico helped to support the export pace thus far in 2017, lower export levels to Japan and China is currently a drag on pork exports. Domestic pork supplies in 2018 are forecast at 52.1 pounds per capita, up from 50.4 in 2017. The average hog price is expected to decrease to $45.00 in 2018, down from $49.01 in 2017

Pork Industry Favored by Strong Demand

Chris Hurt - This is basically a forecast for a breakeven year with all costs being covered, including labor costs and equity investors receiving a normal rate of return.

by Chris Hurt, Purdue University Extension farmdocDaily article

Hog prices are expected to increase in 2017 even with three percent more pork production. Prices will be supported by stronger demand because of a growing U.S. economy and by a robust eight percent growth in exports as projected by USDA. New packer capacity is also expected to contribute to stronger bids for hogs. Feed costs will be the lowest in a decade and total production costs are expected to be at decade lows.

The recently updated USDA inventory report found that the nation’s breeding herd was one percent larger than the herd of a year-ago. This continues a rebuilding of the herd that began in 2014 as feed prices began to move sharply lower and the industry began to recover from pig losses due to PED. The national breeding herd has increased by four percent since 2014. Notable expansions of the breeding herd in the past three years have occurred in Missouri 25 percent; Ohio 9 percent; Illinois 8 percent; and Indiana, Nebraska, and Oklahoma each up 4 percent. Farrowing intentions are up one percent for this spring and slightly below year previous levels for this coming summer.

Producers indicated to USDA that they had four percent more animals in the market herd, reflecting four percent higher farrowings last fall, a three percent increase in winter farrowings and a one percent increase in the number of pigs per litter. Given these numbers, pork supplies are expected to rise by five percent in April and May and then drop to a four percent increase for June through August. Three percent more pork can be expected for September through November of 2017 with supplies up one percent this coming winter compared to year-previous levels.

Live hog prices averaged about $46 last year with losses estimated at $11 per head. Prices are expected to be $3 to $4 higher this year. Live hog prices averaged about $50 per hundredweight in the first quarter of 2017. Prices for the second and third quarters are expected to average in the very low $50s. Prices will likely be seasonally lower in the fourth quarter and average in the mid-$40s. If so, prices would average near $49 for the year and be slightly under projected total costs of production with $1 of loss per head. This is basically a forecast for a breakeven year with all costs being covered, including labor costs and equity investors receiving a normal rate of return.

Current expectations are for feed prices to remain low in 2017, but with corn prices increasing into 2018. On a calendar year basis, U.S. corn prices received by farmers averaged $6.67 per bushel in 2012 (unweighted by marketings). Those prices fell to $3.48 per bushel in calendar 2016 and are expected to be only a few cents higher in calendar 2017. Current prospects are for corn to be $.20 to $.30 per bushel higher in calendar year 2018 due to sharp reductions in 2017 U.S. acreage.

Soybean meal averaged $478 per ton in 2014 (high-protein, Decatur, Illinois), but is expected to average only $315 per ton in 2017, the lowest calendar year price since 2010. Total feed costs per hundredweight are expected to be the lowest in a decade dating back to 2007.Total costs of production may reach 10-year lows. Estimated total costs of production reached $67 per live hundredweight in 2012 driven by high feed prices. For calendar year 2017 that may drop to $49.50, which is the lowest estimated total costs of production since 2007 and would represent 10-year lows.

What are the potential shadows for the industry this year? The first is that meat and poultry competition will be high. In addition to three percent more pork, beef production is expected to be up four percent and poultry production up two percent. There is simply a lot of competition for the consumers’ food dollars.

Secondly, the optimism for the U.S. economy that has been present in early 2017 could falter. This optimism is related to a stronger job market, low unemployment, and record seeking stock market indexes. The anticipated stimulus package of the new administration has likely been a contributor. Time will tell if Congress can agree on this legislation and move it from anticipation to reality. In addition, the FED is likely to continue a series of interest rate increases to slow growing inflation pressures.

Decade low feed cost is important reason pork producers are expected to almost cover all of their costs this year. Weather in the U.S. and in the Northern Hemisphere will be important in the final determination of yields and feed prices.

The industry needs to keep expansion of the breeding herd to near one percent each year. This one percent increase along with about one percent higher weaning rates means the industry can increase pork production about two percent a year. That is sufficient to cover a one percent growth in domestic population and about one percent annual growth needed to expand exports. Growth of the breeding herd at more than one percent could shift the industry back into losses.

Hog Prices Outperform Expectations

There’s some good news for a change in the pork industry. Todd Gleason has more on the better prices with Purdue Extension Economist Chris Hurt.

Pork producers are pleased to see prices higher than earlier expectations.

This comes after a really tough year, says Purdue’s Chris Hurt, that bottomed out in November with prices dropping to about $32 for a hundredweight. That’s like paying 32 cents a pound for your pork chop and your bacon - at least at the wholesale price. Now things are way better says the ag economist. Recently live prices have reached the mid-$50 and have pulled the industry out of deep losses into profitability.

The leading reason for the better on farm price is actually lower pork prices at the grocery store. The “law of demand” says people will buy more when prices are lower, and retail pork prices… have been lower say Chris Hurt, “Retail pork prices peaked in 2014 because of reduced supplies due to the PED virus and have generally been falling since 2015. In the final quarter of 2016, retail pork prices dropped 26 cents per pound from the same period one year earlier. The downward movement continued in January of this year with retail pork prices down 22 cents per pound from one year earlier.”

An additional issue contributing to the extremely low prices for pork producers last fall was the small portion of the retail dollar getting back to producers. Another way of saying this is that the margins for the processors and retailers remained substantially higher than normal. As a result, the portion of the retail pork dollar that got back to the producer dropped to 17.5 percent. This was lower than the previous record low of 18.4 percent in the financially tragic final quarter of 1998. As for the rest of 2017, Hurt thinks there is room for even lower retail prices and a higher percentage of that price getting back to the hog producer.

Probably the biggest opportunity for hog producers is the advent of new processing capacity coming on line in the last half of 2017. The added competition for hogs will likely reduce the farm-to-wholesale margins with much of that reduction bid into higher hog prices. In 2016, for example, USDA reported the farm-to-wholesale margin as 70 cents per retail pound compared to 58 cents in 2015. Export demand remains a positive for the 2017 hog price outlook as well. USDA expects a four percent increase in exports with little change in imports.

Pork supplies are not the reason for higher hog prices in 2017. So far this year, pork production has been about three percent higher than for the same period last year.

Live hog prices are now expected to average near $51 for 2017, up from $46 in 2016. Live prices are expected to average in the very high $40s in the first quarter, then move to the low-to-mid $50s in the second and third quarters, and then finish the final quarter in the mid $40s.

Total costs of production for 2017 are expected to be near $50 per live hundredweight, similar to the annual forecast price of hogs. If so, this means pork producers will recover full costs of production in 2017. Losses in the first and fourth quarter would be offset by profits in the second and third quarter.

There has been an overall improvement in prospects for animal and animal product prices since last fall. That is true for beef, pork, and milk markets. The source of that improvement may well be related to the general improvement in the anticipated economic growth rates for the U.S.-think of the stock market increases since the election. These increases are largely based on anticipated policy that will stimulate the economy, including tax cuts, infrastructure spending, and reduced regulations.

Markets for animal products remain vulnerable to at least three outcomes that could differ from current optimism: 1) The anticipated economic stimulus is not implemented, 2) The strength of the U.S. dollar slows agricultural export sales from anticipated levels, and 3) The U.S. moves in a direction of more protectionism that increases trade barriers and reduces our agricultural export sales potential.

Each industry is trying to figure out what the new administration means for them. Agriculture incomes are importantly influenced by the domestic economy, by the global economy, by exchange rates, and by trade. Agriculture, like other industries, must take a “wait and see” attitude.

New Fertility Products for the Hog Industry

Martin Gleason poses with sow and litter (circa 1944).
Farmers raising pigs around the planet are always looking for ways to improve the productivity of their breeding herds.

University of Illinois Extension Swine Specialist Rob Knox explains PCAI, post cervical artificial insemination.

Two Percent More Pork & Higher Prices

The last USDA Hogs and Pigs report issued in December estimated this year’s supply of pork will be larger than most analysts expect. Todd Gleason has more on how that will happen.

U.S. pork producers, in the last quarter of 2016 set a pigs per litter record,10.63. For the whole of the year, the new annual record is 10.5 pigs per litter. Every sow is having more pigs. Given these numbers, the industry will increase pork output by about three percent this year says Purdue University Extension Agricultural Economist Chris Hurt.

Quote Summary - And that will be to 25.7 billion pounds. This represents a 12 percent increase since 2014 when PED reduced production and contributed to record high hog prices. Pork production will rise by two percent in the first-half of 2017 and by about four percent in the last-half.

What does this mean for the price of hogs? With three percent higher production one might expect annual prices to be lower, however there are additional items to consider

First, retail prices did drop in 2016, but there is opportunity for those prices to come down more. Lower retail prices will stimulate the quantity of pork that consumers purchase. Secondly, USDA expects exports to expand by five percent which will move more of the increased production to foreign customers. Finally, with the addition of new processing capacity, the farm-to-wholesale margins are expected to drop. Lower margins at the processing stage may contribute to stronger bids to hog producers.

Live hog prices are expected to be about $48 in 2017, $2 higher than in 2016. Chris Hurt predicts prices will average $45 in the first quarter, the very-low $50s in the second and the third quarters, and then drop to $43 in the final quarter of 2017. A range of $2 higher or lower would be reasonable for price projections. He expects costs of production are expected to be around $50 on a live weight basis in both 2016 and 2017 based on current feed price expectations.

This means the industry operated at an estimated loss of about $12 per head in 2016 and is expected to have losses that average about $6 per head in 2017. Losses in the first quarter of 2017 are expected to be about $13 dollars per head. Modest profits may return in the second and third quarters. Then with a return to the largest losses of the year in the final quarter maybe around $18 per head.

Because the 2017 outlook is for weak returns the Purdue number cruncher says it is important hog farmers keep further expansion to a minimum. This will be difficult with new processing capacity coming in 2017 as those plants will want to stimulate some added production to fill their lines.

Limited Pork Expansion

The nation’s hog farmers have done a nice of job of not over reacting to last year’s record profits. They’ve limited their expansion plans and consequently should see a good bottomline again for this year, and maybe next.

For all of 2015, pork supplies are expected to be seven percent higher than in 2014. That year the price of pork averaged $76 mostly because the PED virus wreaked havoc on the industry. This years supplies have been farm more stable and supplies for 2016 should only be about one percent higher than in 2015. Hog prices are expected to average about $51 on a live weight basis for this year. Current projections for 2016 are for a similar average price and it means hog farmers will make money says Purdue Extension Agricultural Economist Chris Hurt.

After the record profits of 2014, there has been concern that the industry would over-expand. At this point that concern has not developed with supply and demand anticipated to be in balance for the coming 12 months. This also serves as a warning to the industry to make sure that further expansion plans remain moderate.

There seem to be growing threats in the future for the meats sector. Those include, says Chris Hurt, the continued expansion of total meat supplies into 2016 and 2017 with a rapid ramp up of poultry and increased beef production.

The large drop in finished cattle prices in recent weeks suggest that retail beef prices could begin to drop this fall and provide added competition for pork. In the longer run, beef supplies will continue to expand for multiple years. Potential weakness of meat and poultry exports is also a concern with slowing world economic growth and a strong U.S. dollar.

A strong dollar makes it more difficult to sell U.S. products overseas as they become higher priced. Speaking of price, feed prices will remain low for the next 9 months due to strong yields for 2014 and 2015 crops and weakened exports. Animal product producers will want to take advantage of harvest price lows this fall states Hurt. However, he thinks longer-term, managers need to remain aware that low feed prices are not guaranteed if weather should turn more adverse in some important growing areas.

Lower Pork Costs Driven by Lower Meal Costs

The retail price of a pork chop is getting cheaper. The price of soybean meal is one of the reasons for the decline.

Soybean meal is an important but an “economically” secondary feed ingredient in hog diets compared to corn. Purdue University Agricultural Economist Chris Hurt thinks soybean meal costs, as a feed ingredient, have been about 22 percent of the total costs of raising hogs over the past decade. This compares to 32 percent for corn. In recent years soybean meal has been high priced. For the calendar years of 2012, 2013 and 2014 USDA reports that Decatur, Illinois high-protein meal has had annual averages between $440 and $480 per ton. But with a record U.S. soybean crop in the fall of 2014 and with the second largest crop likely coming this fall, Decatur prices may drop to about $350 per ton and then, as fall turns to winter, even further to average near $325 per ton for calendar year 2016. He says it would be the lowest annual meal price since 2007.

How much have lower soybean meal prices contributed to lower hog production costs? From 2014 highs at $480 per ton to the projected $325 in calendar 2016, costs of production would drop by $5.40 per live hundredweight due to the meal price reduction.

Livestock producers may adjust the corn to meal ratios in diets somewhat depending upon the prices of these two primary feed ingredients. For example, the 2012 drought caused corn prices to be very high relative to soybean meal prices. This relationship caused some shifting to higher protein diets because meal was relatively lower cost than corn. Then for the 2013 and 2014 crops, corn shifted to be cheaper relative to meal. This caused some to reduce their protein levels. In the coming year, corn and meal prices are returning to a more normal long-term relationship.

Estimated total costs of production for a hundredweight of live hogs reached the highest calendar year average in 2012 at $67 per live hundredweight. That dropped to an estimated $51 for 2015. Current projections for 2016 are that total costs will remain about $51. For 2016, lower meal costs are offset by somewhat higher anticipated corn costs, keeping total costs similar to 2015. Clearly a $16 per hundredweight drop in feed costs from 2012 to 2015 and 2016 is a major reduction.

Record costs of production was a contributor, says Purdue University’s Chris Hurt, to higher retail prices. These topped out in September 2014 at $4.22 per pound for USDA’s composite pork average. Of course, PED death losses also contributed to reduced pork production in 2014 as well. Lower priced feed and better control of PED has resulted in higher pork production and as a result consumer pork prices have now fallen to $3.77 per pound.

Given this, Hog producer margins are expected to be near breakeven for both 2015 and 2016. Estimated costs are near $51 and expected live hog prices are near $50. This means a $1 to $2 loss per head. Breakeven implies that supply and demand are close to an equilibrium and that all resources are receiving a “normal” rate of return. This implies that producers have little financial incentive to expand, or to contract. It also means that the lower feed costs over the past few years have been built into more pork production and consumers will now be the beneficiaries of reduced retail prices.

Higher Feed Costs Could Mean Pork Industry Losses

Weather damaged corn and soybean fields are also harmful to hog producers. Todd Gleason has more on the reason why.



Rising feed prices mean higher production costs for the pork industry. Recent higher corn and soybean meal prices have increased anticipated hog costs by about $10 per head says a Purdue University Extension ag economist. These higher feed costs shift the pork industry outlook from one of modest profits to losses says Chris Hurt of about $6 per head over the coming 12 months.

Rising feed costs is a new concern for producers. December 2015 corn futures, as an example, rose from about $3.80 on June 24 to about $4.30 on July 6. This increases the cost of hog production by around $2.25 per live hundredweight. In a similar time period, meal futures have risen about $40 PER ton, which increases cost by about $1.25 per live hundredweight. So, recent increases in corn and soybean meal prices have increased costs by about $3.50 per live hundredweight, or by nearly $10 per hog.

Weather is a primary driver of feed prices right now so no one knows if feed costs will get much higher or more moderate from here.

In June it costs about $50 to produce a hundred pounds of pork says Chris Hurt. With current higher feed prices, costs are expected to be closer to $53.50 for the last-half of 2015 and the first-half of 2016. He cautions, of course, that feed prices can change considerably depending on weather for the rest of the growing season. Right now it means pork producers will likely breakeven this quarter, and lose about $18 a head on those hogs marketed in October, November and December.

Hog prices averaged about $48 in the first quarter of this year, with an estimated loss of $11 per head. Second quarter prices were near $56, for an estimated profit of $14 per head. Third quarter prices are expected to average about $53 per hundredweight, which is near breakeven. The final quarter this year is expected to see prices drop to near $47 with losses estimated at $18 per head.

For all of 2015, losses are expected to average about $4 per head. Recent feed price increases are the primary reason the 2015 outlook has shifted toward expected losses. What is the outlook for 2016? Hog prices are expected to be around $47 per live hundredweight in the first quarter of 2016 and rise seasonally to $54 in the second quarter. Given current corn and meal prices, this would mean an estimated loss of about $17 per head in the first quarter and a profit of $10 per head in the second quarter.

Here’s how Chris Hurt puts all this data in perspective.
  • First, he says pork producers and their allied industries are to be commended for dealing with the PED virus in late–2013 and 2014.
  • Secondly, the industry is to be saluted for only modestly expanding the breeding herd after record high profits in 2014.
  • Finally, Hurt says the higher price of feed should remind the industry to be cautious about expansion, and to follow through on intentions to reduce farrowings this summer and fall.

Pork Industry Continues to Adjust from PED

The price of hogs is on the rebound. It appears to be the economic remnants of a widespread disease outbreak in 2014.

The pork industry continues to adjust from the supply shock created by the PED virus last year. Live hog prices peaked in the summer of 2014 as Porcine Epidemic Virus losses mounted and then fell into the late winter of this season. Looking back it seems prices overshot on the high side due to PED, thinks Purdue University Ag Economist Chris Hurt, and then undershot early this year as market supplies were restored. He says the third phase of this cycle now seems to be the recent recovery in prices - up from the $45 low made in March.

Quote Summary - Now, they have recovered to the low $60s. The low prices in March were clearly related to 14 percent higher production for that month compared to year previous levels and market concerns that pork supplies were going to remain higher by ten percent or more into the spring.

The recent recovery in hog prices, apparently, is related to the fact supplies have not been that high. April pork production was up eight percent. May was about six percent higher. Both are in alignment with the last inventory count from USDA. If those inventory counts continue to hold, then second quarter pork production will be up by six percent, the third quarter up by seven percent, and the final quarter of the year up only four percent says Chris Hurt. He says not only are fewer hogs coming to market, but that they weigh less, too.

Quote Summary - I would guess we’ll average one percent lower weights for most of the rest of this year.

Fewer hogs at lower weights are causing a mid year bump in prices. Live hog prices in the first quarter of the year were $48.47 according to USDA. Prices are expected to average near $58 in the second and third quarters. Hurt thinks it will drop to about $51 in the last quarter of the year, and decline to the high$40 level for the first quarter of 2016. These numbers mean hog producers will make money this year, but lose money starting in 2016 unless the price of corn stays on the bottom of its trading range.

The next important benchmark for the pork industry is USDA’s June Hogs and Pigs report due the 26th. It will show how the industry has grown or contracted since March.

Quote Summary - Producers reported in the March update that they intended to reduce this summer’s farrowings by two percent. This was a surprise given the generally profitable industry since mid–2013. If farrowings should actually expand, this would increase pork production early next year and keep a bearish cast over the industry to start 2016.

If you’d like to learn more about the livestock sector, in particular the pork industry, from Chris Hurt, you may read his thoughts on the Farm Doc Daily website.

Pork's Boom & Bust Price Pattern

Markets can take your breath away and the hog market over the past year has left many breathless says one Purdue University ag economist.



A year-ago in March, the new PED virus was