Pork Industry Favored by Strong Demand

ifr170414–086
Pork Industry Favored by Strong Demand
Chris Hurt, Extension Agricultural Economist - Purdue University

The price of hogs should go up in 2017 even though there will be more of them around. Todd Gleason has more…

This year pork producers around the nation should…
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This year pork producers around the nation should raise about three percent more hogs. This increase in supply will coincide with an increase in price. That’s a bit unusual, but there are some reasons for it to happen says Purdue University Extension Agricultural Economist Chris Hurt.

Hurt :28 …at decade lows, as well.

Quote Summary - Prices will be supported by stronger demand because of a growing U.S. economy and by a robust eight percent growth in exports as projected by USDA. New packer capacity is also expected to contribute to stronger bids for hogs. Feed costs will be the lowest in a decade and total production costs are expected to be at decade lows.

The national breeding herd has increased by four percent since 2014. Notable expansions of the breeding herd in the past three years have occurred in Missouri 25 percent; Ohio 9 percent; Illinois 8 percent; and Indiana, Nebraska, and Oklahoma each up 4 percent. Given this increase, it is important to note live hog prices averaged about $46 last year. It is estimated producers lost about $11 on each hog they marketed. Prices are expected to be $3 to $4 higher this year.

Live hog prices averaged about $50 per hundredweight in the first quarter of 2017. Prices for the second and third quarters are expected to average in the very low $50s. Prices will likely be seasonally lower in the fourth quarter and average in the mid-$40s. Chris Hurt says if this forecast pans out, then prices would average near $49 for the year and be slightly under projected total costs of production. Producers would still lose about a $1 for every hog sold.

Hurt :13 …receiving a normal rate of return.

Quote Summary - This is basically a forecast for a breakeven year with all costs being covered, including labor costs and equity investors receiving a normal rate of return.

There are some financial shadows that could fall on the pork industry in 2017. Hurt is concerned about competition from the beef and poultry sectors. Both have increased production and will be vying for the consumer’s food dollar. That, by-the-way, has had an optimistic start to the year. However, Chris Hurt is cautious about the follow-through needed to maintain the strong economic tone as the new Administration works to develop stimulus packages. Feed costs, bad weather conditions in the northern hemisphere are always a concern. And finally, the industry, he says, needs to keep expansion of the breeding herd to near one percent.

Hurt :23 …one percent annual growth needed to expand exports.

Quote Summary - This one percent increase along with about one percent higher weaning rates means the industry can increase pork production about two percent a year. That is sufficient to cover a one percent growth in domestic population and about one percent annual growth needed to expand exports.

Growth of the breeding herd at more than one percent could shift the industry back into deeper losses.