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Hurt: Hog Margins to Remain Tight

by Stan Maddux

Published: Friday, January 15, 2016

Another tough year financially for pork producers nationwide is in the forecast for 2016, but with slight improvement.

Chris Hurt, a professor of agricultural economics at Purdue University, also predicts sort of a rollercoaster ride for pork prices throughout the year with live hog prices expecting to be in the mid $40's during the first quarter after averaging close to $50 in 2015.

Prices are expected to rise into the low to mid $50's the following two quarters, though, before dropping to the mid $40's during the final quarter, he said.

Hurt said the cost of production is expected to be $50 in 2016, slightly less than the estimated $51 per live hundredweight from farrow to finish in 2015.

Overall, margins are expected to be negative for 2016 with an average loss of about $4 per head, said Hurt.

Hurt also predicted losses will be close to $16 per head in the first and fourth quarters while forecasting $8 per head in profits during the second and third quarters.

Pork producers enjoyed record high hog and pork prices after the Porcine Epidemic Diarrhea virus reduced baby pig numbers from October of 2013 to August of 2014.

Hurt said the industry has all but recovered from the virus, with the number of pigs per litter for 2015 setting a record at 10.38, an amount 15 percent higher than in 2005.

Such a surge in supply was a major reason for prices falling below the cost of production the last two months of 2015 to six-year lows, he said.

Overall, Hurt said hog production was 7 percent higher than in 2014 and hurting prices further was a strong U.S dollar encouraging more pork imports, especially from Canada, which drove up supplies by another 2 percent.

The recent USDA market hog inventory suggests some letup in market supplies beginning early in 2016, with the volume of pork during the first quarter forecast to be 1 percent higher.

The USDA anticipates a 1 percent drop in pork production during the second quarter while remaining unchanged in the third quarter and up by 1 to 2 percent in the fourth quarter.

The outlook by the USDA for 2016 is for pork exports to increase by 4 percent with steady imports.

If correct, Hurt said trade will help to increase prices a bit for 2016 despite a U.S strong dollar working against the bottom line of pork producers.

Working against a rebound in pork prices will also be the production of beef and poultry expected to increase in 2016 by as much as 4 percent, which could force the cost of pork to soften further to encourage more purchasing by consumers, he said.

"The bottom line is that the pork industry has already expanded enough to drive prices back below costs of production. Any further expansion in the pork industry at this time will likely lead to even larger losses,'' said Hurt.

Jason Hocker, a veterinarian with AMVC based out of Audubon, Iowa, agrees with the forecast for a slightly better 2016.

"We're cautiously optimistic,'' said Hocker, whose company manages a 5,000- sow facility at 12480 W. 800 South in Rochester.

The site has 8,000 to 9,000 piglets that four weeks after birth are sent to various finishing locations in Indiana.

AMVC manages farms in seven different states.

"The pig world is kind of cyclical business. You have to withstand three to four years of bad prices to get to the one or two years of good prices,'' said Hocker.

He said 25 percent of the AMVC sales are derived from exports, so a strong U.S dollar—making U.S pork more costly for other countries to purchase—makes it difficult to compete with producers from other nations.

Among the bright spots is the forecast for grain prices to remain relatively low, helping pork producers improve margins by keep operating costs down, Hocker said.

"Demand for pork is steady. We hope it improves,'' said Hocker.

According to Indiana Pork, the state ranks fifth in the U.S with 8.5 million pigs raised n 2013 and pork farmers contribute more than $3 billion each year to the Hoosier state's economy.

Pork farming in Indiana also employs more than 13,000 people and Hoosier pigs are the leading consumer of grain grown in the state, with the amount consumed valued at over $300 million each year, according to Indiana Pork.

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