U.S. pig production is becoming profitable again as feed prices drop post-2012 drought, according to Purdue Extension agricultural economist Chris Hurt.
"This year, the hog outlook is almost the opposite of what it was last year," said Hurt. "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."
The most recent hog numbers available from the U.S. Department of Agriculture, from the September Hogs and Pigs Report, showed that hog inventories are unchanged to somewhat larger compared to 2012 numbers. "Yet slaughter in recent weeks has been very low, seemingly indicating a divergence from USDA's reading," said Hurt.
Between mid-August and the end of September, slaughter rates dropped by an average of more than 5 percent and weekly slaughter rates have been down anywhere from 3 percent to 10 percent. But, perceived low slaughter rates could be a skewed perception based on an aberration in the slaughter numbers in 2012, when producers slaughtered more of their stock earlier to try an recoup coming losses due to prices affected by the drought. Now that the outlook has improved, according to Hurt, breeding herd expansion has likely started and hogs are being held to higher weights. These factors mean that fewer animals are headed to market right now and prices have strengthened.
"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," said Hurt. "With lower slaughter this year, they have averaged about $68 since mid-August."
Higher cash hog prices combined with lower feed costs are the important drivers for a profitable outlook over the next 12 months. According to Hurt, eastern Corn Belt live-hog prices are expected to average in the mid-$60s in the final quarter of 2013 and the first quarter of 2014. Spring and summer prices are expected to move slightly higher.
With the cost of production estimated at $57 per hundredweight, Hurt said cash prices in the mid- to high-$60s would mean profits of more than $20 per head.