Weather, hog growth married
U.S. hog producers go into this summer with a measure of anxiety about how much corn will be available for feeding over the next year, and at what price. By Labor Day or so, they hope to have a better picture of how the corn harvest will turn out. It could hold the key to the hog herd.
For nearly a year and a half, the nation's hog farmers have been expanding their breeding herds at a snail's pace -- but expanding nonetheless -- hoping for a break in the price of corn. They went through most of this past spring hearing talk that this year could bring a bumper corn crop and substantially lower feed costs. But as summer starts, there are new fears of another dry growing season. Whether hog farmers ramp up herd expansion more aggressively or cut back could well depend on the corn outlook through the coming growing season.
"It's as if hog producers are balancing on a fulcrum, and could go either way," says Purdue ag economist Chris Hurt. "They're just waiting to see which way the weather goes, and how it affects the corn supply. I don't think they'll make a decision about herd expansion until they feel that the 2012 corn crop is assured."
Largely because of improved breeding-herd efficiency, resulting in more pigs per litter, U.S. hog farmers are feeding the largest herd in four years, despite record-high corn prices. "They've adjusted their operations to $6 corn," says Hurt. But they aren't making a lot of money either. Hurt calculates that most hog producers would lose money if corn rose to about $6.50. He says that feed prices are a bigger factor in profitability than hog prices themselves -- and that it's been that ways for roughly the last five years.
Hurt recommends that hog feeders consider soft red winter wheat, with new crop coming off the fields now through July. It costs about the same as corn, but has about 10 percent greater feed value. "Hog producers should buy it right off the field, before it gets to the elevator," says Hurt.
Hog producers are operating near break-even, says Hurt, but he includes all costs, including depreciation and returns to a farmer's labor. He calculates a 2012 full-year average cost of production of about $63.25 per hundredweight, live. That's based on a projected record-high average corn price for all of 2012 of $6.21 per bushel, up nearly 3.2 percent from 2011. Hurt estimates an average 2012 hog price of $62, live.
For 2013, he's looking for corn to average $5.50, hog production costs to fall to $59.79 per cwt, but live hog prices to slip to $60. Hurt sees 2013 as another year close to break-even.
For roughly the past 18 months, the breeding herd has been growing by a mere 0.5 percent or so. But pigs per litter have been rising about 2 percent a year. During the 2008-09 period, hog producers sustained losses due to higher corn prices. During that time, farmers did little to modernize their hog operations, says Rich Nelson, research director at broker Allendale Inc. But more recently, as corn prices have come down as much as 25 percent from their peak, hog producers have been updating their genetics and their sow-management practices, he notes.