September 5, 2016
There is no way to sugar coat it. This year’s hog prices are not anything to brag about. However, surviving the cycles of the hog market is a normal part of doing business. The increase in production always yields lower prices. Still, there is plenty of good news for America’s pig farmers.
Black ink for hog returns
Lee Schulz, Iowa State University agriculture economist, calculates the average hog market sold for a profit of $19.36 in July, marking the sixth consecutive profitable month for farrow-to-finish operations (refer to chart).
Calculations by Schulz estimate the average cost of production for July marketings was $62.15 per hundredweight of carcass or $46.61 per hundredweight on a live weight basis. The reports of another fall of bin-busting grain yields are tipping in livestock producers’ favor. Still, the narrow profit margins should provide motivation to micro-manage expenses and leverage marketing opportunities.
Packing capacity expansion waiting game
The anticipating increase in packing capacity has the entire pork industry buzzing. As Steve Meyer, Express Markets Inc. Analytics vice president of pork analysis, reports two new plants are on track to provide some help with a large number of hogs heading to market this fall. In July, Moon Ridge Foods cut the ribbon on its processing facility in Pleasant Hope, Mo. Production ramped up last month with the plant to process 2,500 head per day eventually. In February, Prime Pork announced remodeling the PM Beef plant in Windom, Minn. The goal is to process 4,000 hogs per day. Meyer notes, “We believe it is doubtful that either of these plants will be running at full capacity by the end of the year, but any help matters in a situation as tight as we foresee for this fall.”
Nevertheless, the significant expansion in packing capacity will be in 2017 and 2018 with two plants calling Iowa home while another is set to open in Michigan. Iowa Secretary of Agriculture Bill Northey explains several things drew new processing plants to Iowa including the scale of production with innovative producers and a favorable regulatory system that allows pork to be produced in a responsible manner that can grow. He says, “We are sure excited about the two new hog plants coming to Iowa and being able to have a half billion investment in technology for the future of pork production. These are the most modern plants in the world.”
Seaboard Triumph Foods’ pork plant remains on schedule for commercial production to start up around July 31, 2017, in Sioux City, Iowa. Clemens Food Group plant has already begun hiring managerial workers for the new plant in Coldwater, Mich. Production at the plant is also on track to start in July 2017. Although the Prestage family has endured challenges in Iowa, the company received the green light from the Wright County Board of Supervisors to build a new pork processing plant near Eagle Grove, Iowa. Prestage Foods anticipates beginning operations in second half of 2018. Combined the three plants in full production will process 32,000 head per day.
Boost in hog prices possible
This past week hog market action did offer a shimmer of hope. For five days in a row, hog prices close higher. Unfortunately, all the gains in the hog market for the week were given back last Friday. Still, it signals that a gain in the market is possible.
After reaching the high of $63.85 per hundredweight last Thursday, October lean hog futures tumbled Friday to $60.75 per hundredweight, down 57.5 cents from the preceding week. December hogs settled at $55.375 per hundredweight for the week, down $1.25 from last Friday.
Thus far for the year, hog slaughter is up 0.5%, however the year-to-date pork production is down 0.1% due to lighter market weights. For the week, hog slaughter totaled 2.259 million head, up 0.1% from last week. Last month’s hog slaughter was the largest ever for the month of August.
Slaughter hog prices were also lower last week with the national negotiated barrow and gilt price averaged $57.10 per hundredweight on last Friday’s morning report. Pork cutout value at $77.19 per hundredweight is up 88 cents from the week before. Loin, ham and butt prices were higher, but belly prices were lower than the previous Friday. This past Friday morning’s national negotiated hog price is 74.0% of the cutout value.
Realistically, the direction of future hog prices is in the hands of the consumer. As noted in the Daily Livestock Report, many market watchers are hoping demand will absorb the increase in pork production. Thus far this has not happened with hog values down 25% since June. In spite of this, the fall tailgating season is upon us and the restaurant industry is reporting a surge in customer traffic in family dining, casual dining and fine dining.
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