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.
Prices expected to rise
Prices are expected to rise to the mid-$60s for the second and third quarters this year. If so, second quarter prices will cover all costs of production and a modest profit of $8 per head would unfold in the third quarter.
Feed costs would continue to drop in the final quarter of 2013 and into 2014 given current futures price direction.
Starting early this fall, total costs of production would drop under $60 for the first time since 2011. Prospects for a profitable hog industry remain favorable through the summer of 2014.
The confidence in this more favorable pork outlook is still “skating on thin ice.”
Concerns over further erosion of pork exports remain. Japan, our largest pork buyer, has recently announced a major move by their central bank toward quantitative easing that will depress the buying power of the Yen relative to the dollar. This will make it more costly for Japanese consumers to buy U.S. pork.
The biggest of the worries will remain over feed costs. While the recent USDA Grain Stocks report seemingly “discovered” more old-crop corn and soybeans, those reports have swung sharply between bearish and bullish in recent years.
There is little assurance this latest report has the correct magnitude of remaining old crop supplies.
Weather this summer and the size of 2013 crop production is the other uncertain part of feed costs.
Current dry soils in the Western Corn Belt and Great Plains states are well known. Ending inventories of corn and soybeans will be limited and thus another below-normal production year could push up new-crop prices rapidly.
On the other hand, a return to more normal production could still depress new-crop prices from current levels given the prospects for relatively weak demand for corn use for ethanol and increased international completion for export demand from the U.S.
If U.S. yields do return to near-normal, it is likely that stocks would build and provide some cushion against the next small crop. If this were to occur, not only would feed prices move lower, but there is a higher probability of prices staying lower and less volatile for multiple years.
This would be a favorable business environment for all animal industries to move toward expansion.
Feed price uncertainty remains very large. Feed prices by mid-summer could be much higher, much lower, or about the same as they are today.
One thing is certain: we will know a great deal more about 2013 crops 100 days from now.
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