By Chris Hurt
Do you remember the song “In the Good Old Summer Time”? It turns out that could be a theme song for pork producers. The reasons are not hard to find since hog prices and profitability tend to be the highest in the summertime.
This summer is expected to follow the norm, with prices reaching their highest of the year about now! Last year’s highs were in June and early July, with the ultimate peak stretching above $80 per lean cwt. This summer prices may not reach quite that high, but daily highs should hit the upper $70s.
Profits tend to be the greatest around those summer hog prices. Revenues are driven by hog prices and volume sold, so high summer prices drive revenues to their peak. Costs, on the other hand, tend to also be the highest in the summer when feed prices are their highest. Overall, the higher summer hog prices more than offset the higher feed costs, resulting in the biggest profits for the year.
But why do hog prices tend to be highest in the summer? The primary answer is based on the simple fact that production tends to be lowest in the summer, and the period of lowest production tends to result in the highest prices.
The monthly relationship between pork production and hog prices for the most recent eight years is shown in the chart below. For example, over the past eight years, July pork production has been about 10% below the average monthly pork production, and hog prices have been about 14% higher than the yearly average price.
You can easily see the general pattern. Production was above average in the first three months of the year and the last four months of the year. As a result, prices were below the annual average in those months.
The small production months were May, June, July and August. Lower production during these months is the primary reason for prices being above average and often the highest of the year.
Still seasonal highs
Modern production systems are based on continuous production where the goal is to keep facilities full at all times to obtain optimum throughput. So why has that not eliminated seasonality in national production?
First, keep in mind that the winter pig crop is next summer’s pork production. Winter pig crops have been the lowest due to smaller winter farrowings and smaller baby pig survival rates.
Marketing weights have been the lowest in the summer. Therefore, three factors are the primary contributors to small pork production in the summer: low winter farrowings, low winter weaning rates and low summer market weights. Each has contributed about 2% to smaller summer pork production in the past eight years.
Enjoy your summer and probably the year’s highest hog prices.
Hurt is a Purdue University agricultural economist. He writes from West Lafayette, Ind.