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Published August 19, 2013, 10:48 AM

US hog farmers back in black

Hog farmers posted a profit in June, as higher pork prices and a jump in demand heading into the grilling season helped the industry reverse an estimated $3 billion last year.

By: Theopolis Waters, Reuters

CHICAGO — For the first time in nearly 12 months, hog farmers in June turned a profit as high pork prices, the result of consumers needing meat for backyard grills as the summer cookout season gained traction, had meat companies paying more for hogs.

Now, hog farmers are expecting more profit going into the coming year, a result of a change on the cost side of the business.

The U.S. Department of Agriculture delivered a smaller-than-expected crop forecast on Aug. 12. The data suggests that 2013 still should set a record, which could slash historically high feed costs for an industry that lost an estimated $3 billion last year as the 2012 drought damaged the corn crop and sent feed prices soaring.

Should a long stretch of profitability materialize, some producers will use their money to pay off debts or increase their herds, economists say. But it may take time before they open their checkbooks, to ensure Mother Nature does not introduce some crop-damaging weather before the fall harvest.

Iowa State University’s profitability index showed hog producers in June turned a profit of $10.92 per hog — the first profitable month since July 2012.

Based on an average loss of $31.08 per hog over the 10 months ending in May, University of Missouri economist Ron Plain calculated the U.S. hog industry lost $3 billion. While that is a sizable loss, most producers had enough money saved from previous profitable periods to survive.

With harvest on the horizon, USDA forecast a corn crop of 13.763 billion bushels, a 28 percent increase from drought-stricken 2012, but 2 percent smaller than traders had expected.

As a result, an increase in hog numbers could moderate prices for pork chops and bacon next year, industry analysts say. The average price of pork at retail in June was a penny shy of the all-time high of $3.56 per pound set in September 2011, according to USDA’s Economic Research Service.

“Hog producers can see the promised land in corn prices that in the next 30 to 60 days are going to come down sharply,” says Purdue University livestock economist Chris Hurt.

Hurt estimates that the total input costs to finish pigs to market weight will drop to about $55 per hundredweight in the fourth quarter of 2013 from about $69 during the second quarter. That $14 drop would be the largest on record, barring any unforeseen weather interruptions, he says.

“But today’s signals suggest they (producers) should begin to get the celebration under way,” Hurt says.

Betting on the future

In anticipation of a big fall harvest, the price of corn, the main ingredient in livestock feed, at the Chicago Board of Trade fell 27 percent last month, the biggest monthly loss for the lead contract on a continuous basis since July 1996.

The Chicago Mercantile Exchange hog futures contract for June 2014, the time when producers will begin sending more hogs to market, has dropped nearly 5 percent since late June. Traders sold with the view of more hogs at lower prices when those animals go to market next year.

Nonetheless, October and December hog futures remain well above last year’s levels. Speculators are betting that the spread of the Porcine Epidemic Diarrhea Virus, which is fatal to baby pigs, will shrink hog supplies during that time.

“These back-month premiums are pretty fat even though grain values have come down precipitously, says Don Roose, an analyst with U.S. Commodities in West Des Moines, Iowa. But we kept a premium in the market partly because of uncertainty with PEDV and how the harvest will pan out.”

Anxiously waiting

Dave Struthers, 46-year-old owner and operator of Struthers Farms Inc. in central Iowa, is not ready to strike up the band. He turns out about 3,600 hogs per year on 1,000 acres of land where he also grows corn, soybeans and hay.

Corn from last year’s harvest still hovers above $6 per bushel in parts of the country, and supplies remain tight after the 2012 drought. Grain farmers are holding on to supplies, hoping for a fall rally should harvest be delayed as corn development lags after spring rains stalled planting.

Struthers has enough corn to feed his hogs through the fall with some leftover to sell to local ethanol plants and feedmills. He also offsets fertilizer costs by spraying his crops with manure from his hogs.

“A lot of other independent guys are doing this as well. We’re hanging in there, but we’re by no means rolling in dough.”