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Hog race for profit
March is an important month for U.S. hog producers. It’s one of four times a year USDA surveys the size of the nation’s herd and tallies farmers’ farrowing intentions.
On Friday, March 30, USDA will present to hog farmers, with the government’s annual planting intentions report, the first farm-based look at the potential for the 2012 feed crop.
There’s also a third report that comes out that day showing how much feed is currently in storage to carry livestock producers through the summer.
Together, those reports will help hog producers make decisions about the coming year. They’ll see whether their colleagues have been expanding herds or contracting, and whether feed supplies and prices suggest further expansion or contraction.
So far over the past year
Hog producers have not cut back noticeably in response to last year’s sharp run-up in corn prices. At the same time, hog-herd expansion didn’t explode last fall when corn prices fell after harvest.
This year, the swine industry expects about 2% more hogs than last year, but that’s due mostly to productivity gains (increased pigs per litter), not herd expansion.
The nation’s hog farmers are skittish about expansion, knowing that corn prices could rise quickly between now and late summer if the weather is hot and dry.
Meanwhile, farmers still have hogs to sell, and prices typically peak in the first half of June. That suggests to University of Missouri analyst Ron Plain that farmers don’t have to be in a hurry to market hogs between now and early June. If spring marketings are delayed a few days, producers may get a little higher price.
But once mid-June is reached, prices start a seasonal decline, on average. Plain advises farmers not to delay any hog marketings after mid-June.
If corn prices don’t move much above $7, this is expected to be a profitable year for hog producers. The cost of production looks to be around $80 to $82 on a carcass basis, says Iowa economist Steve Meyer, a consultant for the National Pork Producers Council.
And overall, 2012 prices (Iowa-Minnesota) are expected to average above that, at $84 to $88, says Plain. (But 2012’s average could fall below the 2011 $87.58 average.)
For the next 6 months
Plain sees prices averaging $89 to $93 per cwt before falling to the $77-to-$81 range in the fall. Meyer seems a little more optimistic, looking for upper $90s in the June-to-August period, with at least one summer bid above $100.
Compared to a year earlier, the best 2012 quarter should be the current winter period now ending, when Plain sees carcass prices roughly $3 to $7 per cwt above a year ago.
But by this fall, prices during the October-to-December quarter could average $4 to $8 below autumn 2011, warns Plain. “We are predicting hog slaughter during the fourth quarter of 2012 to be above 30 million head. That is a level that could put serious pressure on slaughter capacity and, thus, force a drop in hog prices,” says Plain.
One small source of support in the fall, Plain says, is one more slaughter day in October-December 2012 than in October-December 2011. That alone will remove an extra 400,000 or more hogs from the market.
Other economic factors
Meanwhile, Plain is closely watching financial turmoil in Europe, which could lower the value of the euro currency. A weak euro means a stronger U.S. dollar, and that hurts U.S. pork exports. Last year, the U.S. exported nearly 23% of its pork production, so it’s important that a rising dollar doesn’t choke off that demand.
The final wild card is the overall U.S. economy, which most observers say is slowly improving. That’s bullish for U.S. pork consumption – especially when Americans are facing high beef and poultry prices. But U.S. presidents typically strive for an improving economy just ahead of elections. Then they often impose harsher medicine in the first year of the next term.
So no matter who wins this November, 2013 could bring a slower economy if the financial markets react poorly to the prospects for the next presidential term.