Little increase in the country’s breeding herd and growing demand could signal a return to profitability in the next 12 months, says Purdue Extension agricultural economist Chris Hurt.
The USDA also reported in its September Grain Stocks report that corn inventories now are higher than expected, reducing the cost of feed.
“Pork producers have largely settled for the status quo because of the uncertainty over feed prices,” he says. “As a result, the USDA says the breeding herd has expanded only slightly as producers awaited the corn and soybean yield and price outcomes of the 2011 growing season.”
The USDA reported that the breeding herd increased 0.6% nationwide in the last year. Most of the growth occurred in Midwest hog states, where the herd was up by 4% in Missouri; 3% each in Ohio, Indiana and Nebraska; and by 1% in Iowa.
“While the breeding herd only increased fractionally, pork production will be up by a larger percentage due to the surging sow productivity,” Hurt says. “This summer, the number of pigs per litter set a new quarterly record at a bit above 10 pigs.”
Pork production for the coming year will be up 2-3%, fueled by higher sow productivity, somewhat higher market weights and lower feed prices.
“While pork production will be higher in the next 12 months, hog prices are expected to be higher, led by strong demand,” he says. “The stronger demand will come from very low levels of beef available in the domestic market and from continued growth in pork exports.”
Hog prices have averaged about $62 per hundredweight in the past 12 months, but are expected to jump to $66 for the next 12 months.
Feed costs should be about $1.75 per hundredweight lower in the coming 12 months, Hurt says, as corn prices are expected to average about $6.10 per bushel.
“These corn prices well below $7 turn the profit outlook positive,” Hurt says. “In the past 12 months, estimated profits were about $5 per head. In the next 12 months, that turns to expected profits above $15 per head, which would be the highest estimated returns since 2006 when corn prices were still low.”
Increased profits aren’t likely to cause producers to expand their operations because there is still much uncertainty about world economic growth and the impacts on pork demand and feed prices.