Previously forecast strong outlooks for hog producers have started to diminish as dryness has crept back in to the equation, notes a Purdue Extension agricultural economist.
While producers' hopes for an industry turnaround aren't completely dashed, says Chris Hurt, a boost in December corn futures and soybean meal prices have producers facing about a $5 increase in production costs per live hog hundredweight. This shift should make hog producers more cautious about expansion, Hurt said.
"Expected margins have narrowed, but not collapsed," he noted.
If hog prices stay above $59 per hundredweight, hog producers will still be in good shape, Hurt says, and if the forecasts are correct, the average per-hundredweight price over the remainder of 2013 through the third quarter of 2014 would be $62.50 per live hundredweight. Hurt said prices in that range would lead to expected average profits of $3.50 per hundredweight, or $10 per head.
Hurt speculates that feed price shifts, however, may cause some producers to abandon expansion plans, therefore increasing the likelihood that hog futures prices also will rise some from current levels.
Another piece to the puzzle is the ever-changing projections of grain yield. Hurt says that both crop and livestock producers will know more when the U.S. Department of Agriculture releases its Sept. 12 crop production report, but feed prices won't be known with any real certainty until harvest is underway.
Poultry and beef production will also will play a role in pork profitability because meat producers compete for consumers. However, current forecasts show beef production down 5%, which means pork producers could grab a larger share of meat consumption.
Regardless, the takeaway of all this uncertainty is that pork producers should take a hard look at expansion plans, especially because even small growth in the national breeding herd could increase pork supplies enough to send the industry back into losses starting in the fall of 2014, Hurt said.
"Expansion needs to be constrained to no more than a 3% increase in the breeding herd over the next year," he said, noting that a 2-3% breeding herd expansion would be expected to push the industry back to breakeven.