Abstract
Executive Summary
This has been a tough year for hog producers, and the pain shows no signs of
easing. The Iowa State University budgets show that U.S. hog producers lost
more than $40 per head on hogs sold in August, the biggest monthly loss so far
this year. However, the losses in August are just one more month in a string
of losses dating back to October 2007. Over the 23 month period, budgets show
losses averaging $22.50 per head. With hog slaughter over that period totaling
more than 220 million head, a total of nearly $5 billion in this downturn.
Even so, the cutback in hog inventories is modest at best. According to the
September Hogs and Pigs report, the breeding herd inventory is down just 3
percent from a year earlier and farrowing intentions are also down just 3
percent this quarter and during the winter months. If these numbers are
accurate, the losses hog producers are enduring will continue at least into
early 2010 and possibly longer.
The good news, if you can call it that, is that corn prices have been
declining. In 2008, corn prices averaged nearly $5 per bushel. So far this
year, the average is $3.50 and recent prices have been near, and even a little
below, $3 per bushel. However, budgets show that hog prices need to be near
$45 per cwt on a live-weight basis for producers to see a profit, even if corn
prices are near $3 per bushel. Cash hog prices are currently in the mid-$30s
per cwt range with the seasonal increase in slaughter now underway.
So what lies ahead for hog producers? The data in the latest Hogs and Pigs
report shows that producers are cutting back on production, but that we will
have plenty of hogs over the next several months. The market hog inventory at
the beginning of September was down 2 percent from yearearlier levels. That
data suggests prices will probably stay below the $45 breakeven level through
the rest of 2009 and into early 2010. Last year, cash hog prices fell by about
$15 per cwt from early October through the end of the year. Early next year,
hog slaughter should be down about percent year-over-year and hog prices will
continue to struggle. It looks like it may be spring or summer before there is
any reasonable chance for hog producers to see sustained profits return.
The huge losses the hog industry has suffered over the last two years will
take a toll on the number of hog producers. Many small- to medium-sized
producers, and even some big producers, have seen their equity vanish as the
negative returns continued month after month. Producers have tried to hold on
through the tough times, but some won' t be able to last until spring if the
losses continue. A decline in the number of hog operations of 4,000 to 5,000
seems possible by next year.
USDA' s forecast shows U.S. pork production falling by about 1.5 percent from
2009 to 2010. With a reduction in output of less than 2 percent next year, it
is hard to see how hog producers will be able to return to solid financial
footing. We expect a slightly bigger reduction of about 2.2 percent in output
for 2010. Under that scenario, hog prices may move back above breakeven by
next summer, but profits remain relatively modest. Producers continue to
reduce the size of the breeding herd throughout 2010, and there is a resulting
improvement in profits two years from now. By 2011 the good profits provide
economic incentives for producers to begin to expand again, but the expansion
is modest.
The economic balance for hog producers can tip based on developments in the
crop sector. However, if we assume good corn crops in 2010 and 2011, hog
production profits are possible. Hog prices improve in 2010 and move still
higher in 2011. With herd expansion occurring in late 2011 and through 2012,
hog prices begin to weaken again. But, unless there is a spike in corn prices,
economic returns for hog producers should be mostly positive over the forecast
period. However, the industry will probably not recoup the $5 billion that has
been lost over the two years from late 2007 through late 2009.
Table of Contents
- Summary
- Market Hog Prices
- Net Returns for Hog Production
- Breeding Hog Inventory
- Market Hog Inventory
- Pork Production
