Pork producers could see modest profits in 2016

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WEST LAFAYETTE, Ind. — Smaller hog breeding herds and lower production costs could lead to modest profits for pork producers in 2016, Purdue University agricultural economist Chris Hurt says. In his analysis of the U.S. Department of Agriculture’s March Hogs and Pigs report, Hurt forecasts a slight slowdown in pork production after two years of expansion.

Supply equals demand

“For right now, the industry seems to have supply in alignment with pork demand such that prices cover the full cost of production,” he said. According to the USDA report, pork producers intend to reduce the number of sows farrowed by 1 percent this spring and 3 percent this summer.

”If they follow through on these intentions, then pork supplies will be smaller than previously anticipated next fall and winter,” Hurt said. “Smaller anticipated supplies will likely boost price prospects.”

Price outlook

Hurt projects live hog prices to range from $49 to $54 per hundredweight for all of 2016, about $1 higher than last year. “Hog prices stand ready to make their normal seasonal rally into early summer,” he said.

Current prices in the higher $40s are expected to move to the higher $50s or low $60s by June and July, he said, and strong prices are expected until September when the normal seasonal pattern begins a sharp decline.

Production costs

Average production costs in 2016 are expected to drop to about $50 per hundredweight, their lowest levels in nine years, due mostly to a grain surplus following two consecutive bumper crops.

Predictions

He expects producers to lose about $9 per head in the first quarter of the year and $6 per head in the last quarter. However, those losses should be offset by what Hurt expects to be profits of $21 per head in the second quarter and $18 per head in the third quarter. He cautioned, however, that feed prices could increase “if weather should turn harmful to the growing U.S. crops.”

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