If you look solely at the current markets, the hog industry is humming along just fine. Dig a little deeper, however, and there’s never been a time when there have been so many unknowns in hog farming and in agriculture in general, says Duane Stateler, an Ohio hog farmer who is a board member of both the Ohio Pork Producers Council and the National Pork Producers Council.

“Normally, you're juggling one or two variables out of 10, but right now, everything seems to have a question mark behind it,” he says.

While the investment in growing a crop skyrockets, Stateler is worried about the availability and price of fertilizer, herbicides and feed. What are farmers going to plant, and will there be enough fertilizer to raise the maximum crop? What will be the impact of the situation in Ukraine? Will consumer demand wane as prices rise? Will parts and other supplies be available to manage the crop and hog barns? And, of course, what’s Mother Nature going to bring to the mix?

“The price of the grain isn't going to affect us much short term because most everybody has got their corn or a big percentage of it secured for this year,” says Stateler, who is farming 1,600 acres of corn, wheat and soybeans in the northwest Ohio town of McComb. He also contract-raises hogs with a 2,400-head nursery and two 2,400-head finishing barns.

“The impact will really be felt next year,” he adds. “So even though we've got a nice price for our pigs right now, if you throw another $2 on the price of corn, all of a sudden your breakeven has come up to where 90 cents isn't enough.”

Stateler is able to offset a relatively small portion of his fertilizer costs with what he calls black gold, which has skyrocketed in value. For 2,400-head facility, its annual value in replacing commercial fertilizer went from $16,900 in 2020 to $62,900 this year.

For his three buildings, he can fertilize 400 acres, enough for two years. “It’s not free though, like some people speculate,” he says. “It takes time and equipment to agitate it, load it and apply it, and I figure that costs me about $38 an acre. With higher fuel costs, that adds about another $20 this year.”

What’s ahead?

After trudging through the onslaught of the pandemic in 2020 — with most operations enduring significant losses because of the supply chain disruptions — hog prices rebounded sharply in 2021, allowing for moderate-to-strong profitability.

So far, producers continue to ride that wave of profitability. The markets haven’t been this good since 2013-14, during the middle of the porcine epidemic diarrhea pandemic that hit North American herds hard.

Stateler ended the year smiling, with the operation being the most profitable it’s been in six years. But it didn’t take long for those profits to dwindle. “Just trying to find inputs was tough, and then costs were two and three times more than what they were a year before,” he recounts. “We soon realized $5 corn isn't as good today as what $4 corn was a year ago.”

Mark Hulsebus, commercial swine director for Provimi/Cargill, warns producers to remember to look at the whole picture and maximize what the markets are providing by focusing on management, he advised during a Feedstuffs Precision Pork podcast.

“That means everything from diet strategy to how to optimize space — where that's possible — to different marketing tactics, and in some cases, even some additives that may help achieve every pound of gain on every pig this year. Don’t start pinching pennies at the expense of dollars,” Hulsebus said. “Growers may want to manage their amino acid content, specifically lysine, and manage the lysine energy ratio more effectively after taking a first cut of pigs. And they need to do a ruthless job of managing wasted space in the barn.”

Matt Ritter, director of nutrition and technical services for Provimi/Cargill, homed in on diet strategies and pointed out the cost of fat has doubled in the past year. “That presents a really challenging decision for a lot of our customers as they think about how to feed pigs this summer,” he said, while encouraging producers to work with their nutritionists right now to understand the costs they have in front of them.

“If fat is pulled, it can drop live weights 6 to 8 pounds at a time when summer heats typically drop weights 8 to 10 pounds,” Ritter adds. “So, if it’s not managed properly, it could almost be a double whammy — off 10 to 20 pounds of what was intended.”

While an added cost, he agreed with Hulsebus, saying it might make sense to help offset that loss with a bump in lysine. He also noted bakery products, while all not the same, may also be a good addition to the diet.

Keep disease at bay

Despite the unknowns, economists believe hog farmers have every reason to be optimistic this spring and summer, so long as the U.S. can keep foreign animal diseases such as African swine fever out of the country. 

ASF is found in countries around the world. More recently, it has spread to the Dominican Republic and Haiti.  ASF has also spread through China, Mongolia and Vietnam, as well as within parts of the European Union. It has never been found in the U.S.

Should a FAD such as ASF or foot-and-mouth disease be detected in a U.S. herd, exports would immediately be shut down, undoubtably resulting in an oversupply of the U.S. market and dramatically lower prices. 

“Farmers have long been focused on keeping disease out of their farms via biosecurity protocols, but have been seeking and implementing additional biosecurity measures given this increased risk,” says Kyle Hurley, GreenStone Farm Credit Services, vice president of agribusiness lending in Berrien Springs, Mich.

Mary Kelpinski, executive director of the Michigan Pork Producers Association says, “With African swine fever as close as the Dominican Republic, it is important to monitor products coming in from foreign countries. It is also important for producers to have a Secure Pork Supply Plan in place. In the event a disease enters the country, it can be tracked and eradicated as quickly as possible.”

Supply outlook

Hog supplies are expected to remain short. Most contract months on the CME are at or near contract highs, Hurley says. 

“This does create significant opportunities for producers to hedge or forward-contract sales at profitable margins at their current cost of production, despite higher feed prices and increasing labor costs,” he says.

“Cautious optimism is how I would characterize farmer sentiment and the industry outlook for the year ahead,” he adds. “Year-to-date prices have been profitable, and the futures markets, at present, provide additional profit opportunities for the next two quarters and an above-average fourth quarter [losses in the fourth quarter are the typical pattern].”

As of the last quarterly USDA Hogs and Pigs Report (Dec. 21), U.S. market hog inventories are down 4% over a year ago, due in part to reduced sow numbers beginning in 2020, but also from health challenges the industry has been combating. Particularly, certain strains of porcine reproductive and respiratory syndrome have resulted in increased reproductive issues and mortality in all phases of production. 

“Given the market volatility, prior years’ losses, health challenges, increased potential production regulations [like California’s Prop 12], and supply chain issues resulting in higher costs and delays in obtaining building materials, there is very little expansion happening or expected in U.S. sow numbers and hogs marketed through 2022,” Hurley says.  

The upside of this stagnation in expansion — pork supplies remain below year-ago levels — is an extended period of profitability for the industry.