North America profitable again to raise pigs

North American hog producers are in a perfect storm of supply and demand with record-high market prices and record-low feed costs.

Jovan Javic I Dreamstime.com | The U.S. and Canadian pig industry is healthy again after a long period of low profitability and even losses.
Jovan Javic I Dreamstime.com | The U.S. and Canadian pig industry is healthy again after a long period of low profitability and even losses.

After corn reached an all-time high in 2012, the price of corn and soybeans have now dropped and are predicted to stay low throughout 2015. Meanwhile, the demand for pork is up and rising due to the porcine epidemic diarrhea (PED) virus that has devastated 10 percent of the U.S. pig herd. The shortage of pigs has driven up the market price in both the U.S. and Canada. Consumer backlash to the higher-priced pork did not happen in 2014 like many people feared. This may be partly because beef has also gone up in price due to a shortage, and because Americans love bacon.

Massive drop in feed costs throughout 2015

Currently, feed accounts for 45 percent of the total cost to raise a pig in the U.S., down from approximately 60 percent in 2013. In Canada, the cost of feed has dropped from 68 percent in 2013 to approximately 64 percent of the total cost of production. The main driver is the 2013-2014 bumper crop of corn.

Right now corn is selling for about $4 per bushel. In 2012, corn sold for double the price at $8 per bushel. Because of the lower feed costs, pigs are going to market at historically higher weights -- 10 pounds heavier than a year ago. The average weight of market pigs in 2014 is more than 285 pounds. In 2013 the average weight of market pigs was approximately 275 pounds.

The price of corn is predicted to go as low as $2.5 per bushel throughout 2015, and the price of soybeans is also expected to drop after the 2014 harvest. However, even with the lower cost of feed, the current market weight of pigs is predicted to normalize. Producers will either need to retrofit older barns or build larger finishing barns to accommodate the heavier pigs, or send the pigs to market sooner at lower weights.

Large growth could threaten the processing capacity

In the U.S. where 10 percent of the pig herd was wiped out, the majority of producers can afford to expand their herds and still be profitable. Costs are approximately 13 percent lower this year than a year ago.

The total cost to raise a pig in the U.S. is about $160 per head. Producers are expanding herds and working with their meat packers to sign contract agreements that will protect them when the U.S. reaches its limit on pigs slaughtered per day -- about 440,000 pigs per day. U.S. hog producers want to avoid raising more pigs than can be slaughtered, like in 1998 when an oversupply brought the market price down to 8 cents per pound.

Unlike the U.S., Canada was largely untouched by the PED virus and is close to slaughtering its maximum number of pigs per day. The market price for pigs in Canada is based on the demand and price for market pigs in the U.S. Therefore, the historic high market price in Canada is because of the shortage of pigs in the U.S.

The cost to raise a pig in Canada is about $173, due to low corn prices and soon-to-be low soybean prices. Yet, while Canadian producers are benefiting from the high market price influenced by the U.S., they don’t have the opportunity to expand their farms like producers do in the U.S.

PED virus versus low feed prices

While the old adage says that cheap feed leads to cheap pigs, it may not necessarily happen in 2015 due to the PED virus. With vaccines on the market, and an increase in biosecurity, it is believed that the U.S. pig herd will continue to grow throughout the winter months, when the PED virus is at its strongest. And it is believed that Canada will continue to keep PED virus at bay.

Yet, at this point, any damage from the PED virus will have a noticeable effect on the already short supply of pigs, and could keep the market price high. Even with high market prices the outlook isn’t positive for everyone, especially those producers that have their livelihoods at stake because of the PED virus. And the hog producers that haven’t had the PED virus on their farms say that they are still recovering from 2012 when the price of feed hit record highs in the U.S. and Canada. But, as of 2014 and into 2015, North America is the most profitable place to produce pork.

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