New year could be profitable for pork industry

Pork producers can see the light of profits at the end of a tunnel of losses, according to Purdue University Extension economist Chris Hurt.

Average losses of $18 per head over the past year have been largely driven by high feed prices.

“Feed prices reached a summit in the third quarter of 2012 with the peak of the drought,” Hurt said. “Estimated total hog production costs shot up $10 per live hundredweight, reaching an estimated $72. Costs last fall and this winter dropped about $4 per hundredweight and are expected to moderate an additional $8 with normal 2013 crop production.”

The December Hogs and Pigs report from USDA provides evidence that 2013 pork supplies will not be down as much as the 2 percent that had been anticipated, Hurt said. Rather, pork supplies for the year may be closer to unchanged, with a 1 percent to 2 percent reduction in the first half offset by a 1 percent to 2 percent increase in the second half of the year.

Market weights will also contribute to increasing pork supplies in the second half of the year. First-half weights are expected to be down about 1 percent as long as feed prices remain high. But those weights will begin to rise late in the summer, assuming feed prices drop with more normal crop production.

“Hog prices are expected to be somewhat stronger in 2013 due to small beef supplies, continued strong pork exports and modestly improving consumer incomes,” Hurt said. “Live prices averaged about $62 in 2012 but are expected to rise to near $66 for 2013.”

Losses will continue in the first quarter of 2013 and are expected to average about $15 per head, Hurt said.

“The return to profitability is expected to come in late April or early May when the spring hog price rally is under way and as meal prices edge lower with the South American soybean harvest,” he said. “Profits are projected at about $10 per head for the second and third quarters before returning to break-even in the fall of 2013 and winter of 2014.”

Break-even means that producers cover all costs, including full labor costs and depreciation on buildings and equipment.

According to Hurt, with the return of a profitable pork production outlook, some producers will discuss expansion plans.

If the extreme drought in the Corn Belt and Great Plains continues, poor crops could send feed costs soaring in 2013, extending losses for pork producers. But normal crop yields could send feed prices lower than they are currently predicted, which would make pork profitable.

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