Hog producers in the U.S. may be preparing an increase in pork supplies that will send prices lower, after three straight years of profit and lower feed costs encourage bigger herds.
The average profit per hog may be $5 to $8 this year, compared with $15 to $20 last year, and $10 to $15 in 2010, said Mark Greenwood, a vice president at AgStar Financial Services Inc. in Makato, Minnesota, who is attending the annual World Pork Expo in Des Moines, Iowa, this week. The 25 percent drop in corn prices during the past year is the “main driver” for expansion, said Altin Kalo, a commodity analyst at Steiner Consulting Group who has studied the industry for a decade.
“Anytime we make money for a period of time, we have a tendency to expand overall numbers,” said Greenwood, who oversees $1.4 billion in loans and leases to the hog industry. “In addition to that, productivity gains continue to be very good.”
Rising output is bearish for hog futures that have jumped 8.6 percent this year on the Chicago Mercantile Exchange, Kalo said. That was the biggest gain except for feeder cattle among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index. The price of hogs traded in the spot market has climbed 9.7 percent this year, government data show.
About 46.415 million hogs were slaughtered this year as of June 2, up 1.7 percent from a year earlier, the U.S. Department of Agriculture said in a June 1 report. The breeding herd totaled 5.82 million sows as of March 1. That’s up 0.6 percent from a year earlier. The USDA is scheduled to release its next inventory report on June 29.
While farmers will begin their expansion by adding 1 percent to 1.5 percent more breeding sows, the majority of the increase in pork supply will come from fatter animals and bigger litters, Kalo said.
“For the last six months, we’ve been thinking these producers are chomping at the bit to expand,” Kalo said in a telephone interview from Manchester, New Hampshire. “Everything seems to point to an expansion. That’s in our bias in our forecasts for the remainder of 2012 and 2013.”
U.S. pork production in the second half of 2012 may be 2.5 percent higher than the same period last year, Kalo said. Output in 2012 will be about 2.3 percent higher than 2011, and rise an additional 2.2 percent in 2013, he said.
The spot price of hogs sold in Iowa and Minnesota, the biggest U.S. producing regions, will fall 5.8 percent from a year earlier in the second half of 2012, Kalo said. The slump will last into 2013, with prices next year dropping about 3.4 percent to 81.5 cents a pound on average, he said.
Lower feed costs will “provide incentives” for continued hog expansion, and the number of pigs per litter will keep rising, the USDA said in a report on May 10. The average number of pigs saved per litter in the three months ended Feb. 29 was 9.97, a record for the quarter, government data show.
The “key” to expansion is the outlook for “a lot cheaper” corn, said Ron Plain, a livestock economist at the University of Missouri at Columbia who has studied the industry for three decades. The grain tumbled on June 1 to an 18-month low of $5.51 a bushel on the Chicago Board of Trade.
Corn output will rise 20 percent to 14.79 billion bushels as yields expand to a record 166 bushels per acre and farmers plant the most since 1937, the USDA said on May 10.
Adding more pounds to the animals is making them heavier when they arrive for slaughter, Kalo said. Hog carcasses averaged 206.71 pounds (93.8 kilograms) on June 4, up 0.7 percent from a year earlier, USDA data show. Weights reached 212.56 pounds on April 12, the highest since at least January 2002.
“We have been increasing efficiencies across the board,” Shane Ellis, a livestock economist at Iowa State University in Ames, said in a telephone interview. “As that happens, that means more hogs are going to be hitting the market, particularly during the fourth quarter.”