Rough times could be ahead for the nation’s hog producers.
Chris Hurt, Extension livestock marketing economist at Purdue University in West Lafayette, Ind., says the combination of high hog numbers, record feed costs and sow liquidation will result in huge losses in the coming months.
“Losses in the final quarter of this year could be $60 per head, exceeding the previous record quarterly losses of $45 per head in the fall of 1998,” he says. Hurt says slaughter numbers over the past couple of weeks have been up 6 percent. Most numbers indicated only a 1 percent increase was expected.
“This has caused a $10 per hundredweight drop in live prices since late July with prices now in the low-$60s,” he says.
“The source of those extra hogs is probably related to some delayed marketings due to the summer heat, to a desire to sell pigs more quickly before prices really tumble moving into fall and to higher sow slaughter.”
Hurt expects cash prices over the fourth quarter to average in the mid-$50s. He says production costs will likely be above $75 per hundredweight for the remainder of the year.
Summer losses are expected to be about $30 per head. Hurt says losses in the first quarter of 2013 will be nearly $38 per head with second-quarter losses falling to $5 per head.
“Over this one-year span, losses may average about $33 per head. That means total losses of around $4 billion for the U.S. industry.”
Hurt says most data indicates sow liquidation began in early August, and has continued to grow. He says roughly 30,000 sows were liquidated in August.
“This would represent a reduction of about 0.6 percent of the national sow head in one month. This rate will continue, and perhaps even increase, if corn prices stay at current levels or move higher.
“The breeding herd may decline by 4 to 6 percent in the six months from August 2012 through January 2013.” Hurt expects that rate to slow after the first of the year.
“The dilemma for the industry is that the enormous losses are going to occur for pigs that are already born. Continued liquidation of sows will not reduce slaughter numbers until next summer and so does not address the short-term financial disaster.”
He says lower slaughter weights could help through less feed use and shorter pork supplies, but adds packers would to agree to lower weights to avoiding sharp discounts for lighter pigs.
Hurt says the red ink could result in severe equity loss for producers. Hog production could become profitable again next summer if feed costs are lower, he adds.