Hog profits seen fading in fourth quarter, analyst says
DES MOINES, Iowa--A record 41 consecutive months of profitability in the hog industry may be coming to an end in the fourth quarter of 2007, analysts told producers at this week's World Pork Expo.
Glenn Grimes, University of Missouri livestock analyst, said higher corn prices and packers holding the line on expenses are limiting profit margins for producers.
"Each $0.50 added to a bushel of corn adds $2.50 to the cost of hog production per hundred weight, Grimes said. "So, if corn goes up $1.00, now we're talking about a $5.00 cost of production increase."
Since last year's World Pork Expo, between $7.00-$9.00 per hundredweight has been added to hog production.
Grimes estimated 2007 fourth quarter hog prices ranging between $40.00-$47.00 per hundredweight on a live cash hog basis, and between $62.00-$65.00 per carcass weight.
"We're not likely to see $80.00 hog prices," Grimes said.
Grimes said the cost of hog production is the factor to watch in coming years.
"It's going to be painful for the hog industry to find out who has to downsize," Grimes said. "Remember, just because a hog producer goes out of business, production may or may not go away."
Bob Wisner, Iowa State University economist, didn't paint a very positive picture for a producer relying on cheaper feed costs.
"We could see some summer pressure on corn prices," Wisner said. "But, long-term, corn prices will be affected by ethanol and biofuels, due to a lot of countries getting into the act."
The demand for corn for ethanol production, will keep feed costs high, Wisner said.
For example, Iowa is expected to use 2.91 billion bushels of corn for ethanol production. Last year, Iowa produced 2.1 billion bushels of corn.
"There will soon be a tug of war between corn export demand and domestic feeding," Wisner said.
The USDA, on June 29th, will update its 2007-2008 feed use estimates.
Meanwhile, the strong demand for corn is leaving little error for this year's growing season. Until now, the majority of the Corn Belt has seen ideal growing conditions.
Separately, Elwynn Taylor, Iowa State University, climatologist, told a large group of pork producers here, that the Midwest is due for a severe drought.
"Droughts occur every 19 years, and we are due for one," Taylor said. "Droughts move from the U.S. Southeast to the Midwest. So, keep an eye on that current pattern."
Considering the weather the crop has already been growing with and the current weather cycle, there is a 30% chance of a record corn yield in Iowa, and a 20% chance for a disastrous drought, Taylor said.
Taylor is estimating the lowest average corn yield in Iowa at 110 bushels and the highest at 171 bushels per acre.
"I think the marginal acres brought into production dilute the average," Taylor said.
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