Tight Year for the Pork Industry

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Tight Year for the Pork Industry
Chris Hurt, Agricultural Economist - Purdue Univeristy Extension

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It’ll be another tight year on the farm for pig producers this year. Todd Gleason has more from Purdue University.

Profit margins last year weren’t so great…
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Profit margins last year weren’t so great for hog farmers. That’ll be the case again in 2016 thinks Purdue University Extension Agricultural Economist Christ Hurt. There are many causes for the tight margins. First and foremost, the meat case will be filled with the competition. Beef production is expected to be up by about 4 percent this year, and poultry producers are putting on an additional 3 percent over last year and that’s just in the United States says Hurt.

Hurt :17 …pork production in competitive countries.

Quote Summary - The global marketplace is also casting shadows on the U.S. pork industry with weak income growth in some countries that buy our pork and a strong U.S. dollar that encourages more pork imports and stimulates pork production in competitive countries.

There are a lot of hogs around the planet, this despite the cautious one percent growth expected in the United States. Still, the most recent USDA Hogs and Pigs report suggest some let up in the big numbers. USDA’s inventory projections point to a 5 percent market supply increase last December, but also suggests this should begin to taper off with the New Year. First quarter supplies suggested by the USDA inventory would be up about one percent, but weights are expected to be down, so total first quarter pork production may be unchanged to up one percent if USDA inventory numbers are accurate. Using the USDA inventory numbers, second quarter pork production would be down one percent for the spring months says Hurt.

Hurt :37 …unchanged to one percent higher than last year.

Quote Summary - What about summer and fall pork production? Pork producers indicated to USDA that they would reduce farrowings this winter by two percent with farrowings unchanged in the summer. If so, pork production would be down one percent in the second quarter unchanged in the third quarter and up one to two percent in the fourth quarter. Thus for 2016, production would be unchanged to one percent higher than last year.

For the year then, says Hurt, live weight hog prices may average in the upper $40 range. This is $10 lower than last 2015 and it could result in some losses.

Hurt :40 …now that is similar to what we had in 2015.

Quote Summary - My 2015 costs of production estimate for farrow-to-finish production was $51 per live hundredweight. A modest reduction to $50 cost is expected for 2016. The slight reduction is due primarily to lower soybean meal prices that will be the lowest since 2007. Margins are expected to be negative for the year with an average loss of about $4 per head. This is similar to what happened in 2015.

The bottom line is that the pork industry has already expanded enough to drive prices back below costs of production. The beef and poultry sectors are also expanding which means more abundant meat and poultry supplies in 2016. Retail meat and poultry prices will need to move lower to move these larger quantities says Hurt. He also says the strong U.S. dollar and weak non-U.S. economic outlook likely mean trade prospects could be an additional factor weakening hog and pork prices.