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Feed falling = hog profit?

After pushing hogs to slaughter earlier due to input costs, falling feed prices are finally allowing producers to slow down the production process.  A major drought in 2012 shot crop prices to new heights, but livestock producers felt the sting causing them to send animals to slaughter quickly and at lower weights.  

Much better conditions have yielded a more fruitful crop, so feed prices are decreasing, showing the promise of profitability to hog producers across the nation.

"This year, the hog outlook is almost the opposite of what it was last year," said Chris Hurt, Purdue Extension agricultural economist.  "Feed prices, especially corn, have been falling sharply.  The hog outlook is profitable, so producers are more likely to be retaining or building the breeding herd and weights are expected to increase as producers hold onto market hogs longer to gain profits on every pound."

Producers are utilizing the opportunity to send their hogs to slaughter for larger weights, decreasing slaughter numbers.  Slaughter rates dropped by an average of more than 5 percent between mid-August and September.

However, there are other possible factors for the decrease in hogs slaughtered including deaths from the porcine epidemic diarrhea virus (PEDV) or herd evaluation differences on a year-to-year basis.

"What is being viewed as a very low slaughter in recent weeks might be due to an aberration in the slaughter numbers a year ago," Hurt said.  "The unusually high slaughter in the late-summer of 2012 was being driven by the drought.  Record-high feed prices and large anticipated losses provided a grave outlook for the industry, and some producers began to adjust."

Some producers adjusted by increasing sow slaughter, while others went as far as liquidating their entire herd.  Now, looking at a more profitable hog market, breeding herds are most likely expanding with a stronger price outlook.

"Given low slaughter numbers, cash prices of hogs have been sharply higher than in the same period in 2012 when they averaged $55 per live hundredweight," Hurt said.  "With lower slaughter this year, they have averaged about $68 since mid-August."

Between the cost of production and increase in price per hundredweight, Hurt estimated hog producers could profit more than $20 per head.

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