The surprisingly low levels of sow slaughter during September and the first half of October have been followed by even lower sow slaughter the past two weeks, according to an analysis in the Daily Livestock Report by Steve Meyer and Len Steiner (www.dailylivestockreport.com).
The agricultural economists said that trend defies the odds when producers were estimated to have lost an estimated $52/head in September and are expected to lose an estimated $31/head for each hog sold in the fourth quarter.
Normally when large losses occur, pork producers liquidate sow herds in an effort to reduce those losses. But that is not happening. Purchase data the last two weeks shows federally inspected sow slaughter of only 60,730 and 60,930 head would be 3.6% and 7.8%, respectively, below the levels of one year ago.
How can this be? Meyer and Steiner suggest there are three reasons why this is happening:
It doesn’t appear that producers are losing anywhere near the estimated amounts on each animal sold. “The modeled average Iowa farrow-to-finish producer would be losing huge amounts only if that producer behaved as the model does and buys all corn and soybeans as they are needed and sells hogs on the negotiated spot market. There are producers who are still doing this – but they do not represent anywhere near the majority of the industry,” they said. Many do a much better job of managing input costs and selling prices.
Many producers representing a larger percentage of production have been doing this for a while, meaning that their financial position is much better than most have estimated. Most producers have financial resources to carry them until positive margins return.
Producers know this is a short crop episode and normal weather next year will produce crops that could put corn prices near $4/bu. and soybean meal back below $350/ton.
All this means producers are making rational decisions in holding on for better times.