Bright Hog Outlook Dims Created by rrummel on 8/27/2013 4:49:24 PM
Culprit? - Cost of feed
Purdue University Extension Economist Chris Hurt says the hot, dry weather is threatening the bright outlook for hog producers. He says rapid increases in feed prices - corn and soybean meal - have raised expected costs nearly five-dollars per live hundredweight from their lows in early August. Expected costs over the next 12 months are now estimated to be near 59-dollars. While Hurt says that hasn’t wiped out the profit potential - it should make hog producers more cautious about expansion. In fact - he says expansion needs to be constrained to no more than a three-percent increase in the breeding herd over the next year.
According to Hurt - expected margins have narrowed - but not collapsed. Starting with a cost of 59-dollars per live hundredweight - he says current forecasts of hog prices will cover those costs. Prices this fall and winter are expected to be around 61-dollars, rise to 65-dollars in the second quarter of 2014 and then drop to about 62-dollars for a third-quarter average. Hurt points out that makes the average over the year spanning the fourth quarter of 2013 through the third quarter of 2014 about $62.50 and provides an expected profit of about $3.50 per hundredweight - or nearly 10-dollars per head.
Because of the recent surge in feed prices - Hurt says some preliminary expansion plans could be aborted - increasing the likelihood that lean hog futures prices will rise some from current levels that are based on expectations of a larger expansion. The magnitude of that increase - Hurt says - is difficult to evaluate until a clearer picture develops around the actual yields and prices from the 2013 corn and soybean crops. USDA production updates on September 12th should help. But Hurt adds feed prices probably won’t be known with much certainty before harvest activity is underway and USDA issues production updates on October 11th.
Given the current outlook for hog and feed prices - Hurt says a relatively small breeding herd expansion could increase pork supplies to a level that would push the industry back into losses starting in the fall of 2014. According to Hurt - a two to three-percent breeding herd expansion would be expected to push the industry back to breakeven levels. He explains that a two-percent expansion would actually mean a production increase of about four-percent. Taking that and other factors into consideration - Hurt says the industry should strive for a modest expansion. He advises individual pork producers to limit expansion to two to three-percent.