March 1, 2017
By Chris Hurt
Life is full of surprises, and sometimes those surprises are a good thing. That seems to be the case for the 2017 hog industry outlook, as producer income prospects have improved with stronger prices so far this year.
Maybe we should look back to last fall, when agriculture could not get a break; the sky seemed to be falling. Crop prices were headed lower, and there seemed to be a cloud over livestock prices, including hogs. It now appears ag prices hit bottom sometime last fall. They've been improving since.
Prices rebound
How much have prices improved since last fall’s lows? According to cash prices at key locations that I track, at this writing, cash corn has risen about 70 cents per bushel from fall lows. Soybeans are up $1.25 a bushel, live cattle about $22 per cwt and lean hogs $32 per cwt. Measured as a percentage, the greatest price increase has been for hogs.
When prices rise broadly, it is usually a sign of some fundamental change. The best guess is the optimism of a more strongly growing U.S. economy in 2017. This is also thought to be the reason for record-high stock market indexes in early 2017. Higher U.S. incomes will increase demand broadly, including for the food and energy sectors that agriculture represents.
Even though pork production is expected to rise by 4% in 2017, it now looks like hog prices will be higher than last year. Carcass prices averaged about $60 per cwt in 2016, and are expected to average in the mid-$60s this year.
Strong second half
The biggest improvement is expected in the last half of 2017. This is because hog prices were depressed due to tightness in packing capacity in the last half of 2016. Current prospects are for fourth-quarter carcass prices to average near $59 per cwt this year, compared to only $48 in the final quarter of 2016.
What about margins? My forecast last fall had been for hefty losses in 2017. Now, with higher prices for both hogs and feed, it looks like producers will be able to cover all costs of production. There may be some small losses in the first and fourth quarters, but those are expected to be offset by modest profits in the spring and summer.
One of the reasons the stock market has been so optimistic is the expectation that the new administration in Washington, D.C., will successfully implement economic stimulus programs. The potential downside is that it is easy to talk about a stimulus package, but much harder to get a plan through Congress and into implementation. Therefore, we must all wait and see what happens.
Hurt is an Extension ag economist at Purdue University. He writes from West Lafayette, Ind.
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