Hog margins remain tight even as prices improve

(Illinois Farm Bureau file photo)

Hog prices were mixed the third week of February with futures prices for the summer surpassing $92 per hundredweight, well above recent cash prices near $75.

Margins, however, remain tight as rising feed costs take a large bite out of returns compared to last year.

“The story of our industry lately is costs,” Steve Meyer, livestock economist with Partners for Production Agriculture, said during a webinar hosted by the National Pork Board (NPB). “We have some of the highest costs we’ve seen since 2014.”

Meyer estimates breakeven costs around $74 per hundredweight on the most efficient farms and up to $80 at other locations. This compares to a breakeven cost of just $63.68 per hundredweight last year.

The economist looks for hog farmers to respond to rising costs by marketing pigs a little sooner this year at potentially lighter weights.

But farmers likely won’t begin reducing the size of the breeding herd significantly until the second half of the year, if at all, depending in part on expectations for 2021 crop output.

“I don’t think we’ll see a (widespread) reduction in (pork) production this year,” Meyer said. “I think we will see lighter (slaughter) weights.”

A key factor keeping hog farmers from culling herds too quickly centers on prices, with the national net price expected to increase from $75 to $79 per hundredweight to $85 to $88 by the second quarter.

Meyer estimates many hog farmers can lock in a profit at recent prices.

“We think there’s great pricing opportunities,” he said. “The low-cost producers can be profitable at $12 per hundredweight and average farmers can make $2 per hundredweight. They can lock that in now.”

The upside price potential is all about demand. Domestic pork demand increased 13.5% since May while U.S. pork exports recently set a record in 2020.

“Domestic demand has been terrific,” Meyer said. “And it looks like China’s demand will remain insatiable. We think it will be a while before China’s hog production grows substantially (as it deals with herd losses from African swine fever). It could be 2022 or even 2023 (before the Chinese swine herd returns to previous levels).”

In the meantime, NPB remains focused on a marketing strategy with the U.S. Meat Export Federation to focus not only on core markets, but also developing and emerging markets.

“The outlook is still good to position ourselves for long-term success. There’s a lot of things we can do to value add for opportunities as the market rebalances,” said Clay Eastwood, NPB director of international markets. “We can’t rely on China’s demand for pork to last forever.”

Key attributes of U.S. pork for overseas promotions include its safety, consistency and high quality, Eastwood noted.