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Hog producers: Follow 'prudent path'
The breeding hog herd's expanding, profits are at healthy levels and another good year's expected for hog producers who have been embattled in recent years by tough market conditions and major cutbacks.
But, there are some major variables still very much in play, and that calls for following a "prudent path" when it comes to building your hog farm for the future, says Purdue University Extension livestock economist Chris Hurt.
Demand's still in a strong place, exports are moving at a record clip, just 2 of the factors that should put per-head profits around $10 for 2012. That's down from about $15/head in 2011, Hurt says, and though that's not yet a sign of a trend, it's enough to exercise some caution when building up herd numbers. Maybe a "wait-and-see" attitude is the best way to proceed.
"The strongest profits are expected in the second and third quarters with seasonally strong hog prices. Some profit is expected in the final quarter of 2012 due to lower corn prices if U.S. corn and soybean yields return to near normal," Hurt says. "Pork producers have remained cautious about expansion. The uncertain U.S. and European economies are an important part of that caution. Also contributing to that caution is the memory of large losses experienced in 2008 and 2009. Probably the largest uncertainty is the price of feed."
And, that uncertainty is substantial. With today's grain supply and demand situation, it won't take much to turn the profit to loss.
"Inventories of corn and soybeans remain very tight. Normal 2012 yields around the world should provide somewhat higher inventories and bring down feed prices. However, any yield reductions in major growing areas this year could push feed costs up once again," Hurt says. "Given the hog and soybean meal price outlook for 2012, the breakeven corn price is about $6.75 to $7.00 per bushel. If corn prices stay at-or-below this area, hog producers could cover all costs or make a profit. If they move above this area, the 2012 profit potential could shift toward a loss."
Taking this into account, Hurt says if you are looking at expanding your hog numbers, your best bet is to wait until at least mid-year.
"These uncertainties suggest producers should continue to wait to expand until 2012 yields in the U.S. are better assured. This means expansion should not begin until mid-summer 2012," he says.