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Are We Seeing the "Greatest Collapse of Hog Prices Ever"?
Prices are rapidly rolling from record-high prices in 2014 –- driven by massive PEDv death rumors-turned-reality –- down to five-year lows near $45 per hundredweight, landing the hog markets in what may be the greatest collapse of hog prices ever.
Even while PEDv was killing millions of pigs, 2014 pork production was only down 2%; now it's skyrocketing past hog supply projections in 2015. Chris Hurt, professor of agricultural economics at Purdue University, calls it a “classic boom-and bust-price pattern.” The looming question: Did prices overshoot to the downside and will they soon recover, or does the larger-than-expected pork supply justify the current low prices?
February pork supplies were anticipated to increase around 3%. Actual supplies? Up 7%.
February pork supplies were expected to be up about 3%, while actual supplies have been up 7% due to 4% more hogs reaching the market than anticipated.
Based on USDA’s December farrowing intentions and sow numbers survey, pork supplies are looking to boost 6% to 7% in the last half of 2015. Since we saw a full 4% more hogs reaching the market in February alone, imagine what we could see come year’s end.
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Using 2015 prices thus far and futures forecast for the remainder of the year, Hurt predicts an average price around $55 per live hundredweight, an improvement from recent $45 prices.
Hold Onto the 2014 Profits; 2015 is Much More Modest
Let’s be honest, 2014 was a year for the books. Pork producers raked in huge profits in lieu of PEDv tormenting the nation’s hog supply and meager crop prices. As you may have guessed, a bust in hog prices also means modest profits, especially when you put the figures next to last year’s estimated profits of $53 a hog. The previous annual record profit was $39 per head in 2005.
“Given current anticipated hog prices and costs, modest losses are expected in the first and fourth quarters this year with about $19 per head of profits in the second and third quarters,” explains Hurt. “For the year, a modest profit of $8 per head is anticipated.”
… Luckily, Production Costs Are Lower
Lessening the strain and worry for pork producers are the low costs of production – a five-year low, in fact. Production costs are estimated to be $52.25 per live hundredweight in 2015 compared to about $57 in 2014. Much of the credit goes to the struggling grain prices for helping feed prices take the plunge.
“The biggest decrease in feed costs in 2015 is expected to come from soybean meal which may be $120 a ton lower ($360 per ton this year vs. $478 in 2014 based on Decatur high-protein prices),” says Hurt.
Average corn costs (based on U.S. farm prices) are expected to land at around $3.83 per bushel this calendar year, down from $4.09 in 2014.
Yes, feed prices are to be the lowest we’ve seen since 2010, but remember that yield variability has been high in those years. However, fewer corn acres plus lower yields could push prices up.
Don't Expand the Herd Just Yet
Hurt lays out two questions to be answered before producers dive head first into expanding their herds.
1. How important will PED losses be to hog numbers this year?
2. Has the industry already expanded more than USDA picked up in the December Hogs and Pigs report?
On March 27, the March Hogs and Pigs report will give information regarding the degree of herd expansion. As previously mentioned, December’s report showed expectations far short of the actual number of hogs.
“If the industry has already expanded sufficiently to drive prices down near costs of production, further expansion could push the industry into losses,” says Hurt.