Attending the many state pork shows reminds me of a class reunion – it’s an opportunity to see old friends and catch up on what’s happening across the pork industry. Every year, the discussions include thoughts on the number of sows in the nation’s breeding herd, who’s expanding, and how bad the PRRS season has been.
Based on the discussions I’ve had the past several weeks, I believe we will see some construction of new sow units in 2013. We are seeing some producers with a 600- or 1,200-sow facility shutting them down and combining their production into one larger unit of 2,500 or 5,000 sows. These larger units have some significant health and economic advantages. They allow producers to establish larger groups of weaned pigs; they can fill a barn quicker with pigs of similar size and age from a single source, and the result is better overall health. And the larger sow herd helps improve barn utilization. The new, larger sow units (e.g. 5,000 sows) can easily fill a 2,400-head barn in one week, where it would take a producer with 1,200 sows a month to fill that barn. Economics are driving this trend to stay competitive.
The porcine reproductive and respiratory syndrome (PRRS) virus began in late last fall and continues to cause problems. The impact of this virus is horrible, wreaking havoc on the general health of the operations it infests. While PRRS is bad, it is my contention that some systems get the virus every year. Consequently, I am not sure if the virus will have a greater impact on production this year compared to a year ago. My gut feeling is market hogs numbers from May through July will be similar to a year ago. That would actually bode well for the industry if pork demand remains strong. Last summer, cash hogs were over a $100/cwt., carcass. Most of us would welcome those prices again.
For the pigs being sold today, we estimate the average breakeven price to be $86 to $88/cwt., carcass. Most producers should be close to this breakeven, possibly even making a slight profit, considering where the cash market is at today. Looking ahead, there are $5 to $10/head profits for most producers in 2013.
The big concern for 2013 is feed costs. We could possibly see corn prices over $8/bu. this summer, but those prices could drop to $4/bu. in the fall if we have a good growing season. Managing through this huge swing will not be easy. It’s important that producers focus on their margins, not their overall costs. Many pork producers say they would like to see corn prices fall back to $4/bu., but it’s important to keep in mind that if that happens, it’s unlikely the price of pigs will stay at $90/cwt. Everything is relative to managing a margin. Costs are important, but margins are more important.
In my travels, I am fortunate to have the opportunity to speak to many groups about the pork industry. I always make this comment: ‘Pork producers are not only good at production; they are also very good at risk management.’ There has been a seismic shift by pork producers between 2009 and 2013. The producers we work with at AgStar today have some form of a risk management program in place. No one can be successful in this business without a solid risk management plan.