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Hog Herd Building; Profits Seen Sustaining Through 2015 -- Economist

The consumer public has put out the call, and the hog industry is responding in a big way at the start of what's likely to be a year of major growth for the U.S. hog herd.

New data show the breeding herd has climbed by 4%, with the number of animals moving into production projected to grow by as much as 7% in the next year. The net result of those shifts is a 5% increase in annual production over last year, and while that's not a huge shift considering the death losses a year ago from the PED (porcine epidemic diarrhea) virus, it does mean a lot more hogs in some key production areas, says Purdue University Extension ag economist and livestock specialist Chris Hurt.

"The breeding herd has grown over the past year by 212,000 animals, mostly in the center of the country. The western Corn Belt breeding herd increased by 105,000 head, with numbers increasing by 55,000 in Missouri; 40,000 in Iowa; and 10,000 in Minnesota. The second largest growth region was the southern Plains as that region recovers from the long-term drought," he says in a university report. "Both Texas and Oklahoma added 20,000 animals to the breeding herd. The third region of concentrated growth was the central Plains, with Nebraska adding 15,000 animals and Kansas adding 10,000."

That breeding herd boost will likely yield just a 1% bump in overall pork production in the first quarter of this year, Hurt adds, though the increase is expected to jump to 5% in the second quarter. Look for that increase to be sustained through the year's end.

"That second quarter increase will come from the 4% larger pig crop last fall and 1% higher marketing weights. Pork production in the last half of 2015 is expected to be 5% to 7% higher, driven by 3% to 4% larger farrowings this winter and spring, higher weaning rates, and small increases in market weights," he says. "For the year, these factors will provide about 5% more pork."

The growth in production will chip away at 2014-type profit levels, but rightfully so. The PED virus caused major death losses, an overall smaller herd, and a price spike for producers as thousands of animals were culled to stem the disease's spread. As the new year begins, PED is still in the back of producers' minds, and will likely remain so through this year, Hurt says, for both good and bad reasons: "While pork producers suffered through PED death losses in 2014, they were rewarded with record-high hog prices and record profitability partially as a result of PED. Hog prices averaged near $76 per live hundredweight, with estimated profit above all costs of $53 per head," he adds.

Don't look for those profit levels to continue this year as the herd is rebuilt. Yet at the same time, don't count out profits. There is and will continue to be money to be made in the hog industry through this year, though not at the astronomical levels driven by the virus that ravaged the U.S. hog herd last year. Of course, cheap feed certainly helps keep profits alive.

"Hog prices for 2015 are expected to average about $60 per live hundredweight, a sharp drop from the $76 record of last year. But total costs of production are expected to be about $53, providing a strong $22 of profit per head produced. Lower costs are being driven by the lowest feed costs in five years, as corn prices are expected to be at five-year lows and meal prices the lowest in the past four years. Hog prices are expected to average around $60 per live hundredweight in the first quarter of 2015, move to the mid-$60s in the second and third quarters, and finish the year in the low-to-mid $50s," Hurt says. "The theme for pork producers in 2015 will be to strive to gain control over PED death losses and to continue to expand the breeding herd. It is likely that the breeding herd will continue to expand another 2% to 4% over the course of 2015.

"Producers may express some disappointment that the extraordinary profits of 2014 will not continue, but they also realize that 2014 was the aberration year that may only happen once in a lifetime. Most will be happy to accept 2014 and 2015 as the best two consecutive profit years in modern hog production," Hurt adds.

Gestation Stalls Out, Group Housing In

As the industry continues to recover from the PED virus, another shift is taking place at some of the nation's largest producers. It's one that wasn't the most popular change in the hog business, but consumer and outside-industry pressure compelled big producers like Smithfield Foods to start transitioning away from gestation stalls to group housing.

The vast majority of the company's sows now farrow in group facilities. By the end of 2014, almost three fourths of Smithfield's pregnant sows were in group systems, though the company's given its U.S. producers until the end of 2017 to accomplish full compliance with the mandate. The same is slated on Smithfield's farms outside the U.S. by 2022, the original deadline for the transition in the U.S.

The industry initially saw group housing as a bad idea when compared to gestation stalls, but production has yet to see a decline since farrowing sows were moved to the group housing systems, says Smithfield CEO C. Larry Pope.

"We made a business decision in 2007, based on input from our customers, to convert to group housing for our pregnant sows on all of our U.S. farms, and I'm proud of the fact that our employees are working very hard to make good on our commitment and complete this challenging task by 2017," he says in a company report. "I am very pleased that our employees report that group housing works equally well from both an animal care and a production standpoint."

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