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Crop potential, herd growth big hog topics
What's the weather like out there? The answer to that question -- as well as what it means to the corn and soybean crops in the field right now -- will have a huge influence on the hog market moving through the rest of this year and into 2013. So, what's that mean for the average hog farmer?
Questions like these were common at the 2012 World Pork Expo held this week in Des Moines, Iowa. Farmers, industry experts and leaders, and company representatives -- some of whom from one of 38 other nations represented at this year's Expo -- had a lot to see and do at this year's event that took place against a backdrop of a lot of cloudy outlooks regarding feed costs, weather and the prospects for expanding the hog herd in the next few months.
"Feed costs were one of the big issues for us: How do we expand when corn and soybean prices were going up?" says Kati Hagenbuch, a hog farmer from Utica, Illinois, who with husband John recently doubled capacity and switched from farrow-to-finish to contract feeding.
The timing of any herd expansion is arguably the difference between making it work and losing money right now, says Purdue University Extension livestock economist Chris Hurt. You don't necessarily want to follow the pack and grow when everyone else does, because that lessens your chances of enhanced profits in doing so. Timing it just right -- a couple months ahead of the general trend -- could have a huge impact.
"Probably the biggest advantage on timing of expansion is if you can move before the rest of the pack moves. What that says is I can start 2 months before the rest of the pack," Hurt tells Agriculture.com. "That gives me the prospect of having pigs finished and in the marketplace before supplies go up. Those 2 months of profitability can actually be pretty substantial. When they're profitable, they're really profitable."
- Special report: What's weather have to do with hogs?
That makes Hagenbuchs glad they acted when they did. "We've already jumped that gun. We're pretty much done with expansion for now," John says.
But, Hagenbuchs have a grain operation alongside their hog business. So, they've benefited from the last few years' higher grain prices. What if you're only relying on corn and soybean meal as a feedstock and not selling it for profit? That's made $7/bushel corn prices a tough pill to swallow. That pill could be getting smaller, though, says Paragon Economics grain and livestock specialist Steve Meyer. Recent data show that the 2012 corn crop's off to a good start, and if it continues, Meyer says feed prices could slip back down into a more profitable range for hog feeders.
"There's a possibility of a huge range of prices. There's a good chance of very affordable corn this year. Ninety-six million acres is great, but you've got to get those bushels out of those acres to ease this tight supply. If I had to look at this year, I'd say $4.00 to $4.50/bushel for corn and $300 to $350/ton soybean meal."
Despite his outlook comprising likely lower feed costs, Meyer doesn't ignore the potential for the opposite to happen, with corn being "strictly a weather situation" at this point in the year. So, what will that weather mean to this year's crop potential? The strong start to the growing season's already taken a turn for the worse, with hot, dry conditions taking over in many areas. That could trip up the crop and ramp up prices if it continues. So, will it?
"This is a year of extremes. we've been coming out of the strongest La Nina event in the last 50 years," says Iowa State University Extension ag meteorologist Elwynn Taylor. "We had one like this back in the 1950s, and that did a lot of things to the U.S. We had 3 years that were pretty droughty in the 1950s. That's the type of thing that we're dealing with -- and the extremes that go with it -- now."
Taylor says there are written records going back 150 years, as well as tree ring records dating back 800 years, that show a regular pattern of stable uptrending crop yields followed by a regular period of volatile, up-and-down growing seasons. If that history holds up and repeats itself in the next few years, we could just be entering the next period of wild swings in crop yield and, likely, crop prices.
"Having not really been dealing with yield volatility during the past 15 years, going to be a shock to people going back to the volatility from the 1980s. We do expect volatility to grow," Taylor says. "We're almost to the year when that volatility will start again unless people have changed the climate so much that nature's completely overridden. We would expect that the harshest year of this century will likely be around 2025; in the past century it was around 1936 and the century before that, 1847. It's just about every 89 years."
So, is it time to expand or not? There's one more set of variables in play right now, Paragon's Meyer says. Though the fundamentals to the production side favor expansion right now, those on the consumption/demand side of the equation aren't as friendly. Based on the former set of variables, expansion works. But, if you're considering it, you've first got to weigh the latter set of variables closely, because right now, they're very close to driving the bus all on their own.
"Based on grains numbers alone, I would expand. But, there are some key issues in play: We still have a very soft economy; there could be a time when people back off consumption but we keep producing," Meyer says. "Per capita use is slowing in the meat complex. The quantity being moved has hit the skids. There's a lot in cold storage. Another factor we've been watching: Per capita disposable income has not had a very good go of it the last year. In this kind of environment, it's easy to see why demand is weak."
In the meantime, Hagenbuchs are glad they took the steps to grow their operation -- albeit in a different way they'd been operating before -- when they did. Now, they hope to keep their farm moving in the same direction to the point where they can return to more of an ownership position in the industry.
"Land prices and cash rent prices are so high right now, and for us, it's just about being proactive moving forward as we get our ball rolling," Kati says. "I think we're happy with how the contract is going so far. We're hoping that moves us to a new equity field where we can start purchasing more ground and cash renting more land at some of these high values."