Hog farmers may have become their own worst enemies for 2016.
Since 2014, when porcine epidemic diarrhea virus (PEDv) cut supplies, hog prices have been strong.
Buoyed by a combination of strong export demand and cheap corn prices due to back-to-back bumper corn crops, hog farmers plowed those fresh profits into infrastructure.
For example, Iowa’s Department of Natural Resources reports that state hog producers went on a building spree, constructing an additional 280 hog barns.
And so it comes as no surprise that there is a glut of hogs on the market.
The U.S. Department of Agriculture reported in December that there were 68.3 million hogs and pigs on U.S. farms. For those keeping track, that’s the highest tally on record going back to 1988 when USDA started counting.
In the report, USDA noted:
From September through November 2015, U.S. hog and pig producers weaned a record high average of 10.53 pigs per litter.
So success breeds success… right? Not so fast.
Pork profits have been weakening. It seems all those hogs are too much of a good thing.
A number of agricultural economists think 2016 hog profits will shrink even with all those mountains of 2015 corn yet to be marketed.
Purdue University ag economist Chris Hurt reckons:
Margins are expected to be negative for the year with an average loss of about $4 per head. There will be large differences by quarter with loses near $16 per head in the first and the fourth quarters and profits of about $8 per head in the second and third quarters.
The bottom line is that the pork industry has already expanded enough to drive prices back below costs of production. Any further expansion in the pork industry at this time will likely lead to even larger losses.
The projections are not rosy over at Iowa State University either:
Pork producers should consider taking take some price coverage on hogs to protect against possible negative market impacts especially for prices in the second half of 2016.
There is an old adage that the cure for low prices is low prices.
Hog producers will certainly be taking that medicine this year… whether it actually works is a question for 2017.
About Dave Dickey
Dickey spent nearly 30 years at University of Illinois at Urbana-Champaign’s NPR member station WILL-AM 580 where he won a dozen Associated Press awards for his reporting. For the past 13 years, he directed Illinois Public Media’s agriculture programming. His weekly column for Big Ag Watch covers agriculture and related issues including politics, government, environment and labor. Email him at firstname.lastname@example.org.
This column reflects the writer’s own opinions and not those of Big Ag Watch.