What is in this article?:
- Hog profits may still return due to lower feed costs
- Prices expected to rise
• These lower feed prices have sharply reduced anticipated feed costs for this spring and summer.
• Corn prices have dropped about $1 per bushel and soybean meal prices about $30 per ton.
As a new college graduate, my first job was with one of the major grain companies who took many market positions.
The executives had a phrase that said a lot, “It’s amazing how often we are right about the market, but for entirely wrong reasons.”
My previous statements that hog production could get back to profitability this spring was based on an expected spring hog price rally. The prospects for that rally, however, dimmed in February and March with the reality that pork exports were headed down.
Now the prospects for a return to profitability have brightened once again, but due to an entirely different reason: much lower feed prices.
The favorable surprise for the animal industries came in the USDA Grain Stocks report at the end of March. Inventories of both corn and soybeans were much larger than anticipated, seemingly indicating that greater supplies of both corn and soybean meal would be available for the rest of this marketing year.
A dramatic downward movement in feed prices had not been expected until mid-to-late summer.
These lower feed prices have sharply reduced anticipated feed costs for this spring and summer. Corn prices have dropped about $1 per bushel and soybean meal prices about $30 per ton.
Estimated costs for farrow-to-finish production were near $70 per live hundredweight in the first quarter of this year. Now my cost estimates have fallen to $65.50 for the second quarter and to $63 for the third quarter.
The outlook early in 2013 was for a return to breakeven based on a hog price rally by May to reach the $70 cost level.
Weakened demand related to exports meant that the spring rally would not be strong enough.
Now, the outlook has shifted toward costs decreasing from $70 to the mid-$60 as the way breakeven could be reached a bit later this spring. A return to breakeven will be welcomed after drought driven feed prices have resulted in losses of an estimated $26 per head for the previous three quarters, including the last-half of 2012 and the first quarter of this year.
Live hog prices in the first quarter of 2013 averaged near $62 per live hundredweight.