The fourth quarter can be a lump of coal in the stocking for hog producers, but Lee Schulz says the holidays should be a bit brighter this year.
Schulz, Iowa State University Extension livestock marketing economist, expects profitability to be around $7.80 per head in the fourth quarter for farrow-to-finish operations — a sharp contrast to losses of nearly $2 per pig a year ago.
“It’s not as good as 2017, but it’s a lot better than 2018,” he says.
The fourth quarter will wrap up a healthy second half of 2019, a year that should pocket many producers a profit of $16 per head. This comes despite estimates that pork production will be up nearly 3.5%.
“We are dealing with record supplies, but we’re able to handle it because slaughter capacity is up about 10% from 2015,” Schulz says.
While the opportunity to make some money is available, there are wild cards in the scenario. Scott Brown, Extension livestock marketing economist with the University of Missouri, says the hog market will go up and down with trade negotiations, specifically with China.
He says with the African swine fever outbreak in China, the world’s largest producer of pork is facing a shortage. That represents an opportunity for the U.S., Brown says, but tariffs stand in the way.
“Prices are going to be better than I thought they would be at the start of the year, but with all the trade uncertainty, it’s hard to predict,” he says.
June trading data showed a slight increase in pork exports, but Brown says shipments are still down for 2019.
Schulz says domestic demand for pork has been strong, helping to keep prices up despite record production. He says while the USDA’s Hogs and Pigs report has been right in line with industry estimates, increased efficiency in the farrowing house continues to suggest more pork.
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“The last report showed March-May pigs raised per litter were up 3.5% from a year ago,” he says. “We will have to see if that is a trend or just a one-time thing.”
Brown says despite the outlook, there is some risk.
“There is downside risk in the hog markets, and it might be time to let someone else hold that risk if you find a price you like,” he says.
Brown says while the USDA seems more optimistic about the corn crop than most farmers, feed costs could spike and cut into profits.
“I would say there is upside risk there, so I would look into locking in some prices if you like what you see,” he says.
“Anytime you can lock in profitability is a good idea,” he says. “There is a good deal of uncertainty out there when it comes to trade, so it’s always smart to have some protection.”
Brown says he would expect break-even prices in the $48 to $52 range on a cash basis for the fourth quarter, but adds it is subject to change.
“We are increasing production at a historic rate, and that usually isn’t good for prices,” he says. “We are very fortunate that demand is staying strong, and good news on China would make things even better.”