Worst is over; Purdue ag economist sees first ray of hope for pork producers

Even with the breakout of H1N1 in April, the failure of hog prices to rally this spring, delayed planting and high feed costs in June, Purdue University’s Chris Hurt is optimistic that pork producers will return to profits in the winter of 2010.

“The first optimism comes from better weather,” said Hurt, Purdue Extension agricultural economist. The moderate temperatures and above normal precipitation forecast for the coming weeks should help the crop, in terms of yield potential, overcome the challenges of late planting and wet soils, he said.

Amidst all the obstacles, hog producers have been trying to find solutions to the large losses they’ve been experiencing. One solution for the pork industry is to cut back on production.

In June, the U.S. Department of Agriculture reported the breeding herd to be down by about 3 percent. Producers’ farrowing intentions are down 3 percent this summer and down 2 percent this fall, Hurt said.

“Unfortunately, productivity is up -- the number of pigs per sow per year,” he said. “Pigs per litter are about 2 percent higher, so this 2 to 3 percent drop in sow farrrowings will largely be offset by increased sow productivity. This may result in a supply that is down only 1 percent -- not enough to get back to profitability.”

Hog prices remain lower than what they were in late April when H1N1 hit, Hurt explained.

“There is no help for producers with hog prices now, but what is a little more optimistic is grain prices,” he said.

As grain prices peaked in early June, Hurt estimated losses of more than $30 per head. Since then, corn prices have dropped about $1 per bushel and soybean meal is down about $50 a ton, Hurt said.

“Now I estimate hog losses at about $14 to $15 per head -- still very large, but compared to $30 it’s somewhat better,” Hurt said. “On a live hundredweight basis, hogs are still expected to get back into the upper $40 range this month and on into summer, which is about where the cost of production is.”

With lower grain prices, the cost of production has to come down, Hurt said.

“Later in the fall, I expect to see slightly lower corn prices and substantially lower soybean meal prices as the world supply of soybeans is restored,” he explained. “This will lower the cost of production on a live hundredweight basis to about $45 and hogs will be averaging close to that, so losses won’t be as large in the fourth quarter.”

With these prices and costs, producers are expected to operate with losses averaging $1 to $3 per head for the last half of 2009.

By the first of 2010, Hurt estimates costs will be in the mid $40 range and that producers will begin to see profits in the first quarter of 2010 and then increase more in the second quarter.

Profits are still several months away and it has been difficult from a cash flow standpoint for producers to make it through. However, Hurt believes the luck of the hog industry has changed.

For now, with corn prices being lower than many anticipated, Hurt recommends producers consider ownership of corn for the coming year’s feeding needs.

“These are probably very reasonable prices to buy at,” he said. “On the soybean side, prices have been very high and there is still considerable moderation to come this fall for soybean meal prices, so don’t buy inventory.”

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