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Hog profits remain in question

08/27/2013 @ 11:25am

Recent gains in corn and soybean prices due to hot dry weather are a concern for hog profitability the balance of this year and into 2014.

The cost of feeding a hog to slaughter size has increased by nearly $5 per hundred pounds on a live weight basis, compared with earlier this month, said Chris Hurt, agricultural economist at Purdue University.

December corn futures have risen by about 50 cents a bushel from lows hit in early August, which accounts for about $2.20-per-hundredweight more in hog-production costs. Soybean meal prices, meanwhile, have climbed by about $90 per ton, raising hog production costs by about $2.80 a hundred pounds, Mr. Hurt said.

Expected costs for producing hogs over the next 12 months is now near $59 per hundred pounds on a live basis.

"This has not wiped out the profit potential, but should make hog producers more cautious about expansion. Expansion needs to be constrained to no more than a 3% increase in the breeding herd over the next year," Mr. Hurt said in his latest weekly outlook report.

For now, the higher feed costs will reduce producers' profits, based on current expectations. Mr. Hurt projects the average price for hogs for the next 12 months to be about $62.50, representing a profit of approximately $3.50 per hundredweight, or nearly $10 per hog.

The jump in corn and soy prices may cause some hog producers to halt or downwardly adjust their earlier expansion plans for the balance of this year and into 2014.

"Given the current outlook for hog and feed prices, a relatively small breeding herd expansion could increase pork supplies to a level that would push the industry back into losses starting in the fall of 2014." Mr. Hurt said. Expanding the breeding herd by 2% to 3% could result in prices no better than breakeven for producers.

In the competitive meats, chicken output may grow by 3% to 4% in 2014, while beef production is expected to be down by around 5%. The pork industry should strive for a modest expansion, Mr. Hurt said.

Write to Curt Thacker at curt.thacker@dowjones.com

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(END) Dow Jones Newswires

August 27, 2013 12:18 ET (16:18 GMT)

DJ Recent Corn, Soy Price Gains are a Caution Flag for Hog Profits->copyright

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