What is in this article?:
- Pork, animal industries facing financial disaster
- Downward pressure on prices
• The crop stress which began in Indiana and Illinois is now spreading further to the west.
• Most of the media attention has been focused on crop producers who face large yield losses. However, the animal industries may ultimately fare even worse.
Downward pressure on prices
Unfortunately, the increased slaughter this summer and fall will tend to increase production and may cause some downward pressure on animal prices.
Over time, meat, milk, and milk product production drops and prices of animals and products rise such that the costs of higher priced feed is passed to consumers. Animal producers ultimately do get compensation for the higher feed costs but that comes after a prolonged period of losses that some producers cannot survive.
How does this play out for the pork industry outlook today? December futures prices are $7.30 per bushel for corn and $450 per ton for meal.
Estimated costs of pork production have reached record high levels for the third quarter of this year, at $72 per hundredweight, and drop only to $69 for the fall and winter. Hog prices cannot reach those lofty costs with losses anticipated to be about $20 per head for the next three quarters.
There is little hope to cover costs until feed prices move lower, which may be the fall of 2013. That is a long horizon of losses.
Producers can be expected to respond by marketing animals more quickly and this means at lower weights. In the last three weeks, the average live weight has dropped from 277 pounds to 274 pounds.
Further reductions should be expected in coming weeks.
Producers also will quickly look for low productivity sows to cull. The decision to liquidate sows will take a bit more time, but that could begin by the end of the summer, and especially this fall. Sows that go to market and are not re-bred in August will not have a litter in December and will not have market ready hogs early next summer.
The important point is that hog prices for the last-half of 2013 should begin to rise because of the quick beginning of liquidation this summer. This will likely be reflected in higher lean hog futures for the last-half of 2013.
The drought is on-going and the impact on feed prices will be dynamic. For those hog producers who can survive the financial pressure over the next year, there can be improvement starting in the last-half of 2013.
That is because hog prices should be higher by that point, short feed supplies will have been rationed out, and prospects for more normal 2013 yields will hopefully be in place.
Those in the animal industry need to articulate the extreme financial stress they are likely to experience in the coming 12 to 15 months.
The immediate view is that crop producers will bear the brunt of the financial losses, but losses in animal industries will be enormous over the next year, perhaps becoming considerably greater than for the crop sector.
This articulation by the animal industries is important to alert consumers to higher retail food prices, but also to policymakers. Policymakers will likely have an influence on release of CRP lands for grazing and haying, on any potential disaster payments from the federal government, and in helping the EPA/USDA make decisions about the size for the 2013 Renewable Fuels Standard.
(For an in-depth look at what dry weather is doing to the Southeast and Midwest, go to the drought topic on the home page. It can be found at http://southeastfarmpress.com/drought.