Monday, April 08, 2013
pigs

Hog Profits Coming Back? Lower Priced Corn, Soybean Meal May Help

AgFax.Com - Your Online Ag News Source


As a new college graduate, my first job was with one of the major grain companies who took many market positions. The executives had a phrase that said a lot. “It’s amazing how often we are right about the market, but for entirely wrong reasons.”

My previous statements that hog production could get back to profitability this spring was based on an expected spring hog price rally. The prospects for that rally, however, dimmed in February and March with the reality that pork exports were headed down. Now the prospects for a return to profitability have brightened once again, but due to an entirely different reason: much lower feed prices.



The favorable surprise for the animal industries came in the USDA Grain Stocks report at the end of March. Inventories of both corn and soybeans were much larger than anticipated, seemingly indicating that greater supplies of both corn and soybean meal would be available for the rest of this marketing year. A dramatic downward movement in feed prices had not been expected until mid-to-late summer.

These lower feed prices have sharply reduced anticipated feed costs for this spring and summer. Corn prices have dropped about $1.00 per bushel and soybean meal prices about $30 per ton. Estimated costs for farrow-to-finish production were near $70 per live hundredweight in the first quarter of this year. Now my cost estimates have fallen to $65.50 for the second quarter and to $63 for the third quarter.

The outlook early in 2013 was for a return to breakeven based on a hog price rally by May to reach the $70 cost level. Weakened demand related to exports meant that the spring rally would not be strong enough. Now, the outlook has shifted toward costs decreasing from $70 to the mid-$60 as the way breakeven could be reached a bit later this spring. A return to breakeven will be welcomed after drought driven feed prices have resulted in losses of an estimated $26 per head for the previous three quarters, including the last-half of 2012 and the first quarter of this year.

Live hog prices in the first quarter of 2013 averaged near $62 per live hundredweight. Prices are expected to rise to the mid-$60s for the second and third quarters this year. If so, second quarter prices will cover all costs of production and a modest profit of $8 per head would unfold in the third quarter. Feed costs would continue to drop in the final quarter of 2013 and into 2014 given current futures price direction. Starting early this fall, total costs of production would drop under $60 for the first time since 2011. Prospects for a profitable hog industry remain favorable through the summer of 2014.

The confidence in this more favorable pork outlook is still “skating on thin ice.” Concerns over further erosion of pork exports remain. Japan, our largest pork buyer, has recently announced a major move by their central bank toward quantitative easing that will depress the buying power of the Yen relative to the dollar. This will make it more costly for Japanese consumers to buy U.S. pork.

The biggest of the worries will remain over feed costs. While the recent USDA Grain Stocks report seemingly “discovered” more old-crop corn and soybeans, those reports have swung sharply between bearish and bullish in recent years. There is little assurance that this latest report has the correct magnitude of remaining old crop supplies.

Weather this summer and the size of 2013 crop production is the other uncertain part of feed costs. Current dry soils in the Western Corn Belt and Great Plains states are well known. Ending inventories of corn and soybeans will be limited and thus another below-normal production year could push up new-crop prices rapidly. On the other hand, a return to more normal production could still depress new-crop prices from current levels given the prospects for relatively weak demand for corn use for ethanol and increased international competition for export demand from the U.S.

If U.S. yields do return to near-normal, it is likely that stocks would build and provide some cushion against the next small crop. If this were to occur, not only would feed prices move lower, but there is a higher probability of prices staying lower and less volatile for multiple years. This would be a favorable business environment for all animal industries to move toward expansion.

Feed price uncertainty remains very large. Feed prices by mid-summer could be much higher, much lower, or about the same as they are today.

One thing is certain: We will know a great deal more about 2013 crops 100 days from now.

To see the original article click here.

 Chris Hurt

 

Tags: , , , , , , , ,


Leave a Reply

Name and Email Address are required fields. Your email will not be published or shared with third parties.

Sunbelt Ag News

    DTN Livestock Close: Red-Hot Bullishness Storms Through Cattle Complex7-22

    Doane Cotton Close: ICAC Releases Supply and Demand Forecasts7-22

    AFB Grain-Soybean Close: Prices Continue Declines with Aug. Soy Gains7-22

    AFB Cotton Close: Moves Higher on Continued Consolidation7-22

    AFB Rice Close: Futures Turn Higher7-22

    DTN Cotton Close: Settles with Modest Gains7-22

    USDA: Don’t Forget Farm Bill Conservation Compliance Changes7-22

    DTN Grain Close: Markets Hit New Lows7-22

    USDA: Weekly National Peanut Prices7-22

    AgFax Cotton Review: Worst Price Slump in 55 Years; Weather Delays Development7-22

    DTN Livestock Midday: Cattle Locked in Limit Higher Trade7-22

    Good Reports on Corn; Wet Weather Stressing Beans — DTN7-22

    DTN Grain Midday: Corn, Wheat Lower, Soybeans Mixed7-22

    Cattle: Nebraska Study Finds No Ill Effects from Zilmax — DTN7-22

    South Korea Importers Returning to U.S. Corn, DDGS — DTN7-22

    DTN Cotton Open: Trades Above Highs of Prior 3 Days7-22

    DTN Livestock Open: Futures Predicted to Start Mixed7-22

    DTN Grain Open: Futures Show Small Gains7-22

    Keith Good: Soybeans, Corn Garner High Condition Ratings, Lower Prices7-22

    Oklahoma Farmer Modifies Business Choices Due to Wet Spring – DTN7-21

    Cover Crops a Good Replacement in Weather Damaged Fields – DTN7-21

    AgFax Rice Review: UN Prescribes Arsenic Levels; Armyworms Abound in MS7-21

    Arkansas: Emerald Ash Borer Turns Up to Threaten Ash Trees7-21

    Good on Grain: Corn Price Premiums Continue to Fade7-21

    It’s Been 18 Years – What’s Happened in Herbicide Tolerant and Insect Resistant Crops?7-21

    USDA Creates Soybeans Out of Thin Air, Sorta — DTN7-21

    Mississippi Wheat: MSU Releases Variety Trial Data7-21

    Flint on Crops: Bacterial Blight Makes a Comeback in Cotton7-21

    California Cotton: Crop Moving Fast. Strong Yield Potential – AgFax7-20

    Peanut Insects Forcing Decisions In Some Southern Fields – AgFax7-19

    Florida Cotton: Fertilizing Late Planted Crop7-18

    Rose on Cotton: Future Holds Possibility of New Crop Sales Increase7-18

    Rice Market: USDA Report Leaves Unanswered Questions7-18

    Rice Crop: Texas Crop Heading; Arkansas Recovering From Heavy Rains7-18

    Midwest: Late-Summer Drought Unlikely – DTN7-18

    Do Bigger Farms Really Have Lower Costs? Not Really.7-18

    Welch on Wheat: Production Increased, Usage Decreased7-18

    Welch on Grain: Higher Than Expected Corn Stocks7-18

    Cleveland on Cotton: The Low Price Cure? Maybe.7-18

    USDA: Peanut Price Highlights7-18

    Georgia Cotton Insect Advisor: New App for Aid with Stink Bug Decisions7-18

    Documentation of Farm Assets, Contracts Aids Survivors — DTN7-18

    AgFax Wildlife Review: Hunting Wild Hogs in the Air and on the Air7-18

    DTN Dried Distillers Grains: Fall in Prices Slowing Down?7-18

    Georgia: Vidalia Onion Growers Battling Yellow Bud Disease7-18

    Interest Rates Have Been Too Low for Too Long – DTN7-17

    Brazil Ag Investments Switch to Logistics, Technology – DTN7-17

    Herbicide Resistance: Exploring Weed Control Options – DTN7-17

    Mississippi: MSU Hires International Rice Breeder7-17

    Mississippi: Late-Season Delta Field Day, Stoneville, Aug. 137-17

    U.S. Grain Transportation: All Mississippi River Locks Open7-17

    North Carolina: Soil Information Class Available to Public Online7-17

    Mississippi: Irrigation Turnrow Talks, July 23-257-17

    U.S. Drought Outlook: Improvements Expected in Plains, Southwest7-17

    North Carolina Corn: Southern Rust Alert, Spray Susceptible Hybrids7-17

    Keith Good: Beige Book — Observations on Ag Economy7-17

    U.S. Energy: California’s Low Carbon Fuel Standard Remains in Effect7-17

    Sunbelt Ag Events

     

    About Us

    AgFax.Com covers agricultural trends and production topics, with an emphasis on news about cotton, rice, peanuts, corn, soybeans, wheat and tree crops, including almonds, pecans, walnuts and pistachios.

      

    This site also serves as the on-line presence of electronic crop and pest reports published by AgFax Media LLC (formerly Looking South Communications).

        

    Click here to subscribe to our free reports.

      

    We provide early warnings and confirmations about pests, diseases and other factors that influence yield. Our goal is to quickly provide farmers and crop advisors with information needed to make better and more profitable decisions.

         

    Our free weekly crop and pest advisories include:

    • AgFax Midsouth Cotton, covering cotton production and news in Alabama, Arkansas, Louisiana, Mississippi, Tennessee and Missouri.

    • AgFax Southeast Cotton, covering cotton production and news in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia.

    • AgFax Southwest Cotton (new for 2013!), covering cotton production and news in Texas, Oklahoma, Kansas and New Mexico.

    • AgFax West (formerly MiteFax: SJV Cotton), covering California cotton, alfalfa, tomatoes and other non-permanent crops in California's Central Valley.

    • AgFax Rice covering rice production and news in Arkansas, Louisiana, Mississippi, Missouri and Texas.

    • AgFax Peanuts, covering peanut production in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Texas and Virginia.

    • AgFax Southern Grain: covering soybeans, corn, milo and small grains in Southern states.

    • AgFax Almonds, covering almonds, pistachios, walnuts and other tree crops in California's Central Valley.

    • AgCom 101, providing guidance to ag professionals involved in social media.

    Our newsletters are sponsored by the following companies: FMC Corporation Chemtura Dow AgroSciences.

          

    Mission statement:

    Make it as easy as possible for our community of readers to find and/or receive needed information.

              

    Contact Information:

    AgFax Media. LLC

    142 Westlake Drive Brandon, MS 39047

    601-992-9488 Office 601-992-3503 Fax

    Owen Taylor Debra L. Ferguson Laurie Courtney

          

    Circulation Questions?

    Contact Laurie Courtney