National Hog Farmer is part of the Global Exhibitions Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

High Production Costs Continue to Challenge Industry

High Production Costs Continue to Challenge Industry

A Daily Livestock Report reader recently suggested that things must have changed a lot since last summer since hog numbers have not shrunk in the manner that some had warned. While it is understandable why this lack of response might suggest that things must be better, they are not, at least not yet, say Steve Meyer and Len Steiner, authors of the Daily Livestock Report.  


Instead of a late-year decline as was seen in 2011, costs exploded to new record highs in August and kept rising. The surge in costs drove a surge in earlier-than-normal marketings and September’s new record highs costs of $195.02/head (as estimated by Iowa State University’s Department of Economics) hit at the same time that prices fell by roughly $12.50/cwt., dropping total revenue to $143.02/head, the economists said. Toss in another estimated $2.02/head in the loss of value for sows and one gets total losses of $54.02/head, the third-worst month in history, trailing only November and December of 1998. Those months saw prices of just over $10/cwt and some prices as low as $8/cwt.

High Costs Continue

But costs have not moderated. In fact, the estimated cost of producing a market hog sold in December was a record-high $199.71/head. That amounts to $98.62/cwt. carcass, and feed costs represented a record 70.6% of total costs.

How can feed costs be rising when corn and soybean meal prices were falling? The answer lies in timing. Pigs sold in September ate a lot of very expensive corn late in life but some relatively cheap corn early. Pigs sold in December ate rather small amounts of very expensive corn in August and September, but a lot of slightly less expensive but still very pricey corn in November and December. Put the patterns together and one can see how costs kept rising.

Are we at the peak? That is possible but the increases in both corn and soybean meal futures during January are keeping costs high.

Our model based on the historic ISU estimates says that $425/ton bean meal and $7.25/bu. corn will result in costs of just under $194/hd or $95.40/cwt carcass. At present, only June, July and August Lean Hog futures exceed those costs and normal basis levels would put cash hogs below those costs in most areas.

Reduced Losses

Futures contracts suggest that hogs prices will rise, reducing losses in January through April to an average of about $19/head. Only good 2013 crops will return the business to profitability. The size of those crops are of course, highly dependent on weather, but acres will be important, too.

We’ll get our first glimpse of USDA’s thoughts on acres at its Agricultural Outlook Forum, Feb. 21-22 in Washington, DC.



Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.