Last year most profitable since 2014

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Current futures market prices indicate 2022 is expected to be nearly $5 per hog more profitable than last year. 

Lee Schulz at Iowa State University calculates that the typical Iowa farrow-to-finish operation earned $27.55 per hog sold in 2021. It was the most profitable year since 2014. Each month of 2021 was profitable except January, November and December. Current futures market prices indicate 2022 is expected to be nearly $5 per hog more profitable than last year. 

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Iowa State University estimates that cost of producing market hogs in 2021 averaged $57.18/cwt live weight or $76.24/cwt carcass weight. That was the highest production cost since 2014.

Hog slaughter declined in January. December daily slaughter was down 3.5% year-over-year and January slaughter looks to be down 8.3%. Combined this works out to be close to the 6% decline in December and January slaughter indicated by the heavy weight market hog inventories in the December Hogs and Pigs report. That inventory survey implied February slaughter will be down 5.5%, March down 2.5%, with slaughter in April and May down 3.7%.  

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There are some slaughter plants that have struggled recently to operate at their desired level because of COVID among packing plant workers. But national slaughter weights have been below year-earlier indicating there is no major backlog in hog slaughter.

Sow slaughter has been below the year-ago level for 37 of last 42 weeks, or down 8%. During this same period, the number of cull sows imported from Canada for slaughter was up 5%. This combination leaves the net slaughter of U.S. sows down nearly 10%. Low sow slaughter implies a growing breeding herd.

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Chinese pork production is rebounding from the 2020 low caused by African swine fever. USDA's Foreign Ag Service is predicting that 2022 Chinese pork production will be up 1.3% from last year which was 34.4% higher than in 2020. This will give China the highest pork production since 2018. As would be expected with increasing Chinese production, USDA is predicting 2022 Chinese pork imports will be down 4.5% from last year, which was down 16.7% from 2020. China was the largest buyer of U.S. pork in 2020, but slid to number three in 2021.

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U.S. pork exports are predicted to decline 1.2% this year after a 2.7% decline in 2021. European Union pork exports are also expected to decline similar amounts in the year ahead.  

Through November U.S. pork imports were up 29% year-over-year with most major suppliers, except Netherlands, shipping more pork to the United States. During this period pork exports were down 2% with a big drop in shipments to China, Taiwan and Hong Kong.

During the first 11 months of 2021 pork imports equaled 4.2% of U.S. pork production and exports equaled 25.7% of production.

Live hog imports were up 1.35 million head (28.5%) during January-November.

Fifty-one to 52% lean hogs averaged $67.28/cwt live weight last year. This was the highest since 2014. The equivalent carcass price is $89.70/cwt. USDA is forecasting 2022 51-52% lean hogs cash prices at $60.50/cwt.

Lean hogs futures contract prices currently trend higher as we move through 2022 with a peak in June or July, then prices decline to December. The futures market implies slightly higher cash hog prices this year than last.

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Inflation is becoming a major factor for market prices.  Retail prices for pork, beef and chicken each set new records in 2021.

The December Consumer Price Index was up 7% year-over-year. That was the biggest increase in nearly 40 years. The average live price for 51-52% lean hogs during December was $51.75/cwt, up 12.5% from a year ago, but up only 5.1% when adjusted for inflation. Several of the coming months are likely to have hog prices that are above the year-earlier level but are lower after adjusting for inflation.

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Meat in cold storage dropped dramatically in the spring of 2020 when packing plants were forced to idle operations due to COVID in their employees. Levels have stayed low. There were only 407 million pounds of pork in cold storage at the end of November. That was the lowest for any month since August 2010. Low cold storage stocks create the potential for quickly higher prices should production drop unexpectedly. 

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Cash corn prices have been fluctuating around $6 per bushel for the last several weeks. Corn futures expects prices to stay at or above $6 until this fall. Concerns that high fertilizer prices will constrain 2022 corn acreage are supporting corn on the deferred contracts.  

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Source: Ron Plain, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. The opinions of this writer are not necessarily those of Farm Progress/Informa.

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