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Recent pricing is giving pork producers some minor relief
Illinois Correspondent

CHICAGO, Ill. — Patience, when it comes to pork producers this year, appears to have been a little virtuous.

Late this summer the pork industry faced a critical situation brought on by severe drought. Producers were hit with high feed prices and immense pressure to sell off, said Purdue University agricultural economist Chris Hurt.

Although lean hog futures have dipped in price during the past week, eliminating some of the gains. They nonetheless paint a better picture than prices did in mid-September, when Hurt predicted losses for the last quarter of more than $60 a head.
With lean hog prices rebounded slightly and feed costs inching downward, pork producers who were patient believe the industry should see an upswing as they move into 2013.

“Now that the damage from the 2012 drought is better known, those who did not panic are facing much smaller losses than was feared at the height of the crisis,” Hurt said.

Feed prices tend to reach peak prices around the worst time of the drought and then move irregularly lower through the marketing year, he added, a pattern evident since September.
Corn at one point was pushing $8.40 a bushel.

While lean hog prices were trading at above $80 per cwt. a few weeks ago and dipped to about $77.18 last week, it was much lower during the height of the drought and when the industry feared record sell-offs.

According to a report from the CME Group, pork producers are anticipating higher hog prices by next spring.

“Sow slaughter has certainly slowed since early October, falling far short of year-ago levels in three of the past four weeks for which actual slaughter data are available,” according to the recent report.
Lower feed prices and higher lean hog prices have given producers some measure of relief. Although losses on average will still fall in the range of $15-$20 per head, Hurt said.

“Since early September, anticipated losses have been reduced by at least $30 per head with about 40 percent of the improvement coming from lower feed prices and about 60 percent from higher hog prices,” he said.

“In the weeks since mid-October, sow slaughter has dropped below previous-year levels as optimism for a much improved outlook in 2013 was unfolding. These reduced sow numbers seem consistent with a 2 to 3 percent reduction in farrowing intentions this fall and winter.”

The industry overall has lost money in 2008, 2009 and again this year, but Hurt is optimistic for 2013, assuming a return to a healthier corn crop and more typical prices.

“Pork producers who entered the drought in weak financial condition have had to rely on cash infusions from lenders. To their credit, lenders have generally supplied that capital and recognized that this downturn would be intense, but short,” he said.

“The era of high feed prices has been difficult for all of the animal production industries. For those that did not panic, it now appears the sun will rise again and the dawn of profitability will once again return.”