Pork producers start to slowly expand the national herd

West Lafayette, Indiana - The U.S. pork industry has started a slow expansion driven by lower feed costs, which should lead to more rapid growth of pork supplies in the latter half of this year, says Purdue Extension agricultural economist Chris Hurt.

That could result in 2014 turning into the best year for pork producers in nearly a decade.

If corn and soybean meal prices stay low as expected, hog weights and pork production should continue to increase into 2015, Hurt said.

"The U.S. Department of Agriculture reports the number of market hogs to be down fractionally in 2014, but weights are expected to run about 2 percent higher and result in a 1 to 2 percent increase in pork production for the first half of 2014," Hurt said. "Farrowing intentions for this winter and coming spring are up 1 to 2 percent. With pigs per litter about 1.5 percent higher and higher weights, pork production in the last half of 2014 will be up 3 percent.

"Pork production is likely to continue to expand into 2015."

That continuing growth will be met with strong demand both based on limited competition domestically and strong export demand. Total meat supplies of beef, pork, chicken and turkey combined are likely to remain unchanged this year.

While chicken production is expected to grow by about 3 percent and turkey by about 2 percent, Hurt said beef supplies will fall by as much as 6 percent on the tails of a small calf crop and higher heifer-retention rates.

"Retail pork prices will be much lower than beef and will thus continue to pull some consumption away from beef at the retail counter," he said. "USDA analysts expect pork export demand to increase by 4 percent and represent nearly 22 percent of total production."

Last year, live-hog prices averaged $65 per hundredweight. Hurt said they are expected to average about $66 this year, with the highest prices ranging from $69 to $71 in the second and third quarters. Increased production during the summer and fall will then drive prices back down to below the 2013 levels.

Low production costs will, however, help maintain strong profit margins for pork producers.

"From 2000 to 2006, the estimated total costs of raising hogs was about $36 per live hundredweight," Hurt said. "That reached a high on a calendar year basis of $67 in 2012. Costs were estimated at $64 last year and are expected to average about $56 for the 2014 calendar year."

Part of what continues to drive low production costs is low feed prices. Corn averaged an estimated $6 per bushel in 2013. That price could fall to an estimated $4.45 per-bushel average for the 2014 calendar year. Soybean meal averaged about $440 per ton last year and likely will drop to an average of $395 per ton in 2014.

According to Hurt, profits could reach about $27 per head, making this year the most profitable for pork producers since 2005. As supplies increase, he said those margins will tighten, but not disappear.

"Profit margins are expected to narrow in the fall of 2014 and into 2015 as pork supplies increase," Hurt said. "Returns, however, still look to be profitable at least until the fall of 2015."

Hurt's full report, Pork Industry Starts Modest Expansion, is available for download via the University of Illinois Extension's Farmdoc Daily at http://farmdoc.illinois.edu/marketing/weekly/html/010614.html. A podcast version is available on the site. 

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