Hog Farmers Should ‘Think Twice’ on Expanding, Paragon Says

U.S. hog farmers should “think twice” before expanding herds because too much supply may create a “bottleneck” in 2013 that would send prices lower, said Steve Meyer, the president of Paragon Economics.

“Even if they’ve got a deal with a packer to get their hogs in, it’s going to force somebody else to find a home” for animals ready to be slaughtered, Meyer said today in an interview at the World Pork Expo in Des Moines, Iowa. “From a packing-capacity standpoint, it’s just going to be very tight. We’re just going to have about as many hogs as we can put through those plants and maybe more.”

U.S. pork production may climb 3.5 percent next year with the breeding herd expanding 0.5 percent, productivity gains adding 2 percent and weights climbing 1 percent, Meyer said. The average spot price of hogs will fall to 83 cents to 87 cents a pound in the first quarter of 2013 as supplies increase, he said. That’s down as much as 5.5 percent from today’s price of 87.85 cents, according to government data.

Meyer recommended against expansion while “on-farm profitability” signals, such as the outlook for lower animal- feed costs, are an incentive for some producers to increase output.

Corn prices have slumped 20 percent in the past 12 months on prospects for increasing supplies of the grain, the main ingredient in livestock feed.

‘Severe Impacts’

Limits in slaughterhouse capacity mean that meatpackers won’t be able to handle an increase in animal supply, Meyer said. That may spur “pretty severe price impacts in the fourth quarter of 2013,” he said.

Pork exports this year will be “pretty steady,” Meyer said. Matching last year’s record volumes would be “an accomplishment” as the dollar’s rally eroded the appeal of U.S. shipments, he said. Also, some countries including China, the world’s biggest pork consumer, have larger domestic supplies, he said.

U.S. exporters shipped 598,058 metric tons (1.3 billion pounds) of pork in the first quarter, up 8 percent from a year earlier, according to the U.S. Meat Export Federation. Shipments were a record 2.255 million tons last year.

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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