Illinois Ag Connection
4 months, 2 weeks ago Illinois Ag Connection
Higher hog prices and lower feed prices have increased profitability prospects
From Illinois Ag Connection:
According to Purdue University Extension economist Chris Hurt, pork producers might want to say thank you for the recent USDA reports that have sharply brightened their profit outlook. The June 27 Hogs and Pigs report indicated that breeding herd expansion had not yet started and that baby pig death losses from the PED virus continued to be high last spring. The second report of beneficial numbers came in the June 30 Grain Stocks and Acreage reports, which were contributors to rapidly falling corn and soybean meal prices.
"In the week following the reports, higher anticipated hog prices and lower anticipated feed prices have increased profitability prospects about $18 per head for the period that represents use of the 2014 crops," Hurt said. "Lean hog futures rose on average about $6 per hundredweight and corn prices fell by about 40 cents per bushel with soybean meal declining around $30 per ton.
"Prior to the hog inventory report, there was an expectation that the nation's breeding herd was already in expansion, with spring farrowing intentions up 2 percent," Hurt continued. "However, on June 1, the breeding herd was down fractionally and actual spring farrowings were also down modestly. The PED virus apparently continued to inflict higher death losses in the spring than had been anticipated. While USDA does not specifically ask producers to report death losses from PEDv, they do report the number of pigs per litter. By comparing the reported number of pigs per litter this year to the five-year trend provides a proxy of how PEDv has affected baby pig survival."
Hurt said that this analysis suggests that baby pig death losses began to show up in the national data last October, with 2 percent losses. That expanded to 3 percent in November, 6 percent in December, and peaked near 8 percent death losses in the coldest weather months of January, February, and March. Losses appeared to be moderating somewhat with warmer weather, but were still 7 percent in April and 5 percent in May. The death losses from PEDv will likely continue to trend lower this summer, but current information suggests that the disease is far from controlled.
"The number of hogs coming to market this fall and winter will be smaller than had been expected due to smaller spring farrowings and higher-than-expected PEDv death losses," Hurt said. "This is the basis for the sharply higher lean hog futures this fall and winter. Producers have been selling their surviving hogs at higher weights. The number of hogs marketed in the first half of 2014 was down about 4 percent, but weights were up over 3 percent. As a result, pork supplies were surprisingly down less than 1 percent as weights substantially compensated for PEDv death losses. This means that high hog prices are being partially driven by smaller pork supplies, but more important by strong pork demand. The two most important components of strong pork demand are related to the currently tiny supply of beef and to strong pork export demand.