Des Moines Register
12-28-06
Three-year run of profitable hogs could end soon
In early 2007, economists and analysts expect high supply and high corn prices
to result in losses for producers.
By JERRY PERKINS
REGISTER FARM EDITOR
Record numbers of hogs on Iowa farms and higher corn prices could put an end
to a record run of hog profits as early as this winter, pork industry analysts said
Wednesday.
On Dec. 1, Iowa farms had 17.2 million hogs, the most ever counted in a
December inventory and the largest number of hogs on Iowa farms since
September 1955, according to a U.S. Department of Agriculture report released
Wednesday.
Iowa's hog producers increased their herds by 4 percent compared with a year
ago, well above the 1 percent increase in the number of U.S. hogs, according to
the report.
Pork producers have made money on each hog sold dating to February 2004,
according to estimated returns compiled by Iowa State University Extension
economist John Lawrence.
That run of profits has led many Iowa hog producers to invest in new
confinements.
Kevin Baskins, spokesman for the Iowa Department of Natural Resources, said
the department issued 297 hog building permits during the first 10 months of
2006, more than triple the previous record of 97 permits issued in 2005.
But Lawrence's hog-production cost estimates show that corn prices have
climbed 36 percent since January and that the cost of finishing a hog to a 260pound market weight has increased 10 percent, which cuts into producers'
profits.
In coming months, large supplies of hogs are expected to hit the market and help
decrease prices, he said, but that won't bother producers as much as the
increased cost of production because of higher corn prices.
"I think we will see red ink in the first and fourth quarters," Lawrence said.
Ron Plain, professor of agricultural economics at the University of Missouri in
Columbia, agreed with Lawrence that profits for hog producers will end next year.
"Unfortunately, 2007 has a lot of red ink in it," Plain said.
Scott Tapper, a hog producer from Webster City, said hog producers are
spending their profits in a variety of ways.
"Most are reducing debt loads or investing in new technologies," he said.
More producers are continuing a trend of buying small pigs and feeding them to
market weight, he said, instead of owning sows and raising their litters to market
weight.
"I quit farrowing sows a couple of years ago," Tapper said.
Higher corn prices mean hog producers will feed their market hogs to lighter
weights, he said.
"It's just not economical to put those last 20 pounds on," he said.
Lighter-weight hogs mean there will be a decrease in the number of pounds of
pork coming from U.S. packing plants and going to supermarket counters.
John Nalivka, president of Sterling Marketing in Vale, Ore., said higher corn
prices will eventually lead to higher costs for cattle, poultry and hog producers
and cutbacks in meat supplies, but not for a while.
"If there is any impact on meat prices, it will be later in the year if there is
liquidation in the industry, and 2008 will be the time to watch for," Nalivka said.
Speaking in a teleconference held by the National Pork Board, Dan Bluntzer,
director of research for Frontier Risk Management in Robston, Tex., said hog
producers have avoided overproduction after such a long run of profits.
"In talking to hog producers, it is very apparent that the industry as a whole is
telling itself, 'Let's not mess this up by expanding like we used to do,' " Bluntzer
said.
Bluntzer said he has seen an expansion of about 1 percent a year, compared
with 5 percent or 6 percent in years past.
Farm Editor Jerry Perkins can be reached at (515) 284-8456 or
jperkins@dmreg.com