Pork industry continues to adjust from PED
By Debra Levey Larson
June 1, 2015
  • /ACES
  • /ACES News
  • /Agricultural and Consumer Economics
 

URBANA, Ill. – The pork industry continues to adjust from the supply shock created by the Porcine Epidemic Diarrhea (PED) virus last year. Live prices peaked in the summer of 2014 as PED losses mounted and then fell into the late winter of 2015. Purdue University Extension economist Chris Hurt says looking back, it seems that prices overshot on the high side due to PED, then undershot early this year as market supplies were restored. The third phase of this cycle now seems to be the recent recovery in prices from their undershooting.

Hurt reported that live hog price peaks were near $100 per hundredweight in July 2014, then prices fell to as low as about $45 by late March 2015. Now they have recovered to the low $60s.

“The low prices in March were clearly related to the 14 percent higher production for that month compared to levels and market concerns the previous year that pork supplies were going to remain higher by 10 percent or more into the spring,” Hurt said. “The recent recovery in hog prices apparently is related to the fact that supplies have not been that high. April pork production was up 8 percent and May was about 6 percent higher and in alignment with the last inventory count from USDA.

“If those inventory counts continue to hold, then second-quarter pork production will be up by 6 percent, the third quarter up by 7 percent, and the final quarter of the year up only 4 percent,” Hurt said.

According to Hurt, lighter marketing weights contributed to the lower-than-expected supplies. Hog producers began marketing at sharply higher weights in the fall of 2013 as feed prices finally started downward. The PED-related losses of baby pigs that fall and into the spring of 2014 served to increase hog prices sharply but also gave affected producers more finishing space. They used that space to keep hogs on feed for longer periods with the reduced feed prices. In 2013, live weights averaged 276 pounds, but that level increased to 285 pounds in 2014, a 3 percent increase. In mid-April this year, weights dropped below year-previous levels and may average near 1 percent lower for the remainder of the year.

Live hog prices in the first quarter of the year were $48.47, according to USDA. Prices are expected to average near $58 in the second and third quarters, drop to about $51 in the last quarter of the year, and decline to the higher $40s for the first quarter of 2016.

Total costs of production estimates are near $51 per live hundredweight, and live hog prices are expected to average $53.50 for the year. “If this happens, it would mean an average profit of about $7 per head for the year with the strongest of those profits around $18 per head in the second and third quarters,” Hurt said.

The final quarter of the year is expected to be near breakeven with $9 per head losses returning for the first quarter of 2016.

Hurt said continued reductions in feed costs are critical for hog prices to stay above costs for the rest of the year. “Current feed costs are the lowest in five years dating back to the spring of 2010. Production prospects for the 2015 corn and soybean crops are favorable at this time, but everyone knows that weather during the next 90 days will largely determine final yields and be a major factor in feed price determination,” he said.

Pork prices have also moderated for consumers. Retail pork prices, as measured by USDA’s estimate of retail composite prices, peaked in 2014 at $4.01 per pound, a 10 percent increase for the year. The highest monthly prices were reached in September 2014 at $4.22 per pound. “Between September and April, they have fallen each month to $3.77 per pound, an 11 percent drop from the peak,” Hurt said. “In contrast, retail beef prices continue to rise. Beef prices rose 13 percent in 2014 and have risen an additional 2 percent since last September. Retail beef prices in April 2015 were $6.40 per pound, which is in sharp contrast to pork at $3.77 a pound.”

The next important report for the pork industry is the USDA’s June Hogs and Pigs report to be released on June 26.

“Producers reported in the March update that they intended to reduce this summer’s farrowings by 2 percent,” Hurt said. “This was a surprise given the generally profitable industry since mid-2013. If farrowings should actually expand, this would increase pork production early next year and keep a bearish cast over the industry to start 2016.”