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Wait Before Expanding Hog Operations

Wait Before Expanding Hog Operations
Purdue Economist says delayed planting will have an impact on pork production decisions

Despite the recovery of hog prices, it's not time just yet to expand hog operations, said Chris Hurt, Purdue University Extension agricultural economist.

Hog prices have rallied this spring – from the mid-$50s per hundredweight in March to the low-$70s – coming back from a disappointing 2012 fueled by drought issues. Feed prices have also fallen lately, a benefit to producers.

Though each factor may seem to be a cause for celebration, Hurt said late planting has cast a seed of doubt in the markets.

"Delayed planting has most recently sent corn and meal prices trending upward, raising concerns that hog production costs will not drop as much as some had anticipated," he said.

Purdue Economist says delayed planting will have an impact on pork production decisions

Even with lower feed costs and higher hog prices, Hurt expects producers to be in a period of break-even for the foreseeable future, despite what happens with planting progress.

"Current forecasts are that fourth-quarter corn prices will be $1.25 lower per bushel than third-quarter prices and soybean meal prices will be $40 lower per ton," he said. "That means costs will drop from about $67 per live hundredweight this summer closer to $60 for the final quarter of the year.

"Hog prices are expected to be near the $60 level for the final quarter of 2013 and 2014, thus continuing break-even conditions."

Hurt advised producers to keep expansion plans on hold until they see how this year's crop sizes and prices pan out and how they will affect hog production costs. More information about the crop will become available over the next 60 days, as the growing season progresses.

He said in general, if corn prices stay below $6 per bushel, the pork industry will be able to survive another year of low crop production, but the opposite would be true of $5 or lower corn prices.

Some expansion could be expected with low $5 corn prices, and a more aggressive expansion would be expected with corn prices dropping below $5.

With corn prices uncertain, Hurt expected producers to hold off expansion until fall, and any expansion at that time would begin with gilt retention and wouldn't increase pork supplies until late summer and fall of 2014.

Source: Purdue

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