Illinois producers face a big decision as to their future in the hog business, says University of Illinois Extension farm management specialist Dale Lattz.
This year is profitable, but predicting prices for the next five years is difficult, he says.
“The amount of continued expansion or liquidation, the strength of consumer demand for pork, the level of exports, and the availability of reasonably priced corn and protein supplements will largely determine the profitability of hog production during the next five years,” he states in the report entitled: “Costs to Produce Hogs in Illinois—2003.”
Illinois returns in 2003 averaged $38.15/cwt., compared to $32.25 in 2002. But total production costs in 2003 still exceeded returns by 78¢/cwt.
“For the five-year period, 1999 through 2003, total returns exceeded production costs by $1.01/cwt., says Laatz. “Three of the past five years show a positive return for farrow-to-finish enterprises.”
In 2003, feed costs were at their highest level since 1998, accounting for 60% of total costs, he says. Non-feed costs declined between 2002 and 2003.
Data came from members of the Illinois Farm Business Farm Management Association. In the study, farmers were divided into two categories: those farrowing fewer than 500 litters/year and those farrowing 500 or more litters/year.
Costs were higher for the smaller operations, which averaged $40.32 to produce 100 lb. of pork. Larger farms averaged $36.51/100 lb. “The most significant cost difference between the two groups of farms was in feed cost/100 lb. of pork produced,” says Laatz.
“Larger enterprises have a $3.38 lower feed cost than smaller ones – $21.37 compared to $24.75. The $38/ton lower price paid for commercial feeds by the larger enterprises and the 16 fewer pounds of feed it took to produce 100 lb. of pork accounted for the lower feed costs.”
“Producers should evaluate expected returns for more than one year before making new investments in hog production facilities,” says Laatz. “Over the past five years, returns for small producers averaged a negative 30 cents/100 lb. of pork produced and a positive $2.22 for the large producers.”
For the future, the key lesson for every hog producer is to pinpoint the level of production efficiency in his/her operation to realistically assess profit potential and staying power in the business, he states.
Use reasonable projections of input requirements and an efficiency level that can be maintained, especially when considering expanding or entering the hog business, stress Laatz.