updated: 8/31/2012 12:54:56 PM
A Purdue Extension agricultural economist says the nation's pork industry may suffer "short-term carnage" over the next several months. Chris Hurt says the drought could lead to $4 billion in losses for the sector in the next year.
August 31, 2012
West Lafayette, Ind. -- The nation's pork industry will continue to experience some of its worst economic losses in recent history as record-setting drought decimates feed supplies, says Purdue Extension agricultural economist Chris Hurt.
Producers could lose about $30 per head this summer and nearly $60 per head during the final quarter of the year as continuedliquidation of herds drives down market hog prices and drought drives up feedprices. This exceeds the previous record quarterly losses of $45 per head inthe final quarter of 1998.
In the next 12 months, losses could average $33 per head,meaning about $4 billion in losses for the U.S. pork industry.
"A tsunami of red ink is about to wash across thepork industry, which is facing losses unseen even in the fall of 1998 when hogprices approached zero value," Hurt said. "Stressors include morehogs than expected in the market, rapid sow liquidation and record feedprices."
The market anticipated a 1 percent increase in slaughternumbers, but in recent weeks, slaughter has jumped by 6 percent. The unexpectedaddition of hogs to the market has caused a more than $10 per hundredweightdrop in prices since late July with prices now in the high-$50s.
A number of factors could be driving the slaughterincrease, but, according to Hurt, it's likely related to the high cost of feedand a desire by producers to sell pigs before market prices tumble evenfurther.
Based on current lean hog futures, prices for the finalquarter this year are predicted to fall to the mid-$50s per hundredweight. Butthe cost associated with raising hogs continues to rise.
"Tragically, costs of production are expected to beabove $75 per live hundredweight for the remainder of this summer, fall andwinter," Hurt said.
Hurt referred to it as a "short-term carnage"and said he expects losses to continue through the winter but for the industry to return to near the break-even point by late spring. He expected losses near $38 per head inthe first quarter of 2013, but by the second quarter those should fall to $5per head.
The first wave of national hog breeding herd reductionbegan in early August and has continued to intensify. Slaughter data show thatin August alone nearly 30,000 sows were sent to market. That's a reduction ofabout 0.6 percent of the national sow herd in just one month. That rate willcontinue to increase if corn prices stay at current levels or move higher. Hurtsaid the breeding herd could decline 4 percent to 6 percent from now untilJanuary, but sow liquidation should slow sharply after the winter.
In the short term, however, hog producers should focus oncost-saving management for market hogs.
"The dilemma for the industry is that enormous lossesare going to occur for pigs that are already born," Hurt said. "Shortof euthanizing young pigs, reduction of market weights could be a viable optionfor the industry. The weight reductions would reduce total pork supplies, useless feed and enhance hog prices."
President Barack Obama authorized the government to buy asmall portion of the nation's pork supply, but Hurt doesn't think it will beenough to significantly change falling prices.
"The volume of pork the government will purchase isso small it will reduce the losses by less than $1 per head," he said.
Hurt's more in-depth projections for the pork industry areavailable in his podcast and article, "Pork Industry Faces RecordLosses," in Farmdoc Daily's Weekly Outlook at http://farmdoc.illinois.edu/marketing/weekly/html/082712.html
Source: Purdue University