Pork producers could be on the verge of turning profits after suffering several months of losses caused by drought-decimated feed resources, Purdue Extension agricultural economist Chris Hurt says.

Widespread struggles began in the spring of 2012 and have continued into this winter. But with feed prices reaching their peak last summer, Hurt said there is now light at the end of the tunnel.

“Feed prices reached a summit in the third quarter of 2012 with the peak of the drought,” he said. “Estimated total hog production costs shot up $10 per live hundredweight, reaching an estimated $72. Costs last fall and this winter dropped about $4 per hundredweight and are expected to moderate an additional $8 with normal 2013 crop production.

“By next fall, that could put estimated costs of production around $60 per hundredweight.”

Reduced beef supplies and strong pork export markets also are expected to drive higher hog prices. Live hog prices averaged about $62 per hundredweight in 2012 but are expected to hit $66 for 2013.

Hurt said that while prices will increase to an average of about $63 per hundredweight in the first quarter of this year, $71 in the second quarter and $69 in the third quarter, producers will continue to suffer losses until spring.

“For the immediate future, losses will continue in the first quarter of 2013 and are expected to average about $15 per head,” he said. “The return to profitability is expected to come in late-April or early May when the spring hog price rally is under way and as meal prices edge lower with the South American soybean harvest.

“Profits are projected at about $10 per head for the second and third quarters before returning to break-even in the fall of 2013 and winter of 2014.”

Even with profitability on the horizon, Hurt said producers need to be cautious about expanding their herds. Extreme drought in the western Corn Belt and Great Plains continue to threaten feed supplies and profitability because poor 2013 crops in those states could cause corn and soybean prices to hit record highs.

If the drought were to subside and crop production return to normal, he said, feed prices would drop and pork profitability would climb.
“Most pork producers realize that the level of feed prices is both the biggest threat to those anticipated profits and the greatest opportunity for extraordinary profitability over the next two years,” Hurt said.

Hurt’s full comments can be found in his article, “Pork Profits on the Horizon” at http://www.farmdoc.illinois.edu/marketing/weekly/html/010713.html

Source: Purdue University