There's a lot of bearish news for corn lately.
But, there's hope for the bulls in the hog business. No, it's not going to get any easier for you to add value to your grain by feeding a few hogs on your place like what was the case in generations past. But, moderating corn prices should feed a self-perpetuating cycle of hog profits and grain stability. It won't be a monster boon to corn prices, but it's got long-term promise, says Purdue University Extension ag economist Chris Hurt.
"The hog industry expansion will not be large enough to return corn prices to the previous lofty levels. However, when all animal industries are included it will be a period of growing feed use base for corn growers," Hurt says. "Thus, it is anticipated that in coming years there will be a better balance between the crop production sector and the animal sector."
This outlook comes at a good time, with federal officials working to pare down the amount of corn used for ethanol, a move that would effectively drain some demand from the corn balance sheet.
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But, enter the hog marketplace, one about which there's been a lot of talk in the last year on growing profit potential in the near future. Much of that improved outlook's been predicated on lower feed costs, and as those costs continue to moderate, so grows the potential for herd expansion. And, though that expansion's based on lower prices, it's actually good news for corn farmers in the long term.
"Grain farmers are looking for new corn uses now that ethanol is not big enough. Low corn prices are encouraging end users to seek ways to add value to corn, which is now below costs for most corn growers. What about hogs?" Hurt says. "For the 2013/14 corn marketing year, hogs are offering an estimated $6.85 per bushel if the profits from hog production are assigned to the value of corn."
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It's not going to be a complete dealmaker for either the corn or hog market; there's a lot that has to happen before that new dynamic becomes reality, Hurt says.
"How big is the incentive for hog expansion? At first glance it appears to be very large. During the period that spans the 2013/14 corn marketing year, live hog prices are expected to average about $67 per hundredweight with costs of production closer to $56," he says. "That means an expected profit of $32 per head and relates to the $6.85 per bushel for corn marketed through hogs. Unfortunately, it takes time to get into hog production, and gilts retained now will not have market-ready pigs until late 2014 when much of the profit incentive will be eroded. That profit erosion is due to the expected expansion already underway and to somewhat higher corn prices for the 2014/15 marketing year."
Though the outlook for stable feed costs extends a few years, it's going to still take quite a bit of time for the herd to bounce back from the drought of 2012, which slammed all livestock producers with sky-high feed costs and led to major herd cuts. Hurt says next June will be a key timeframe; that's when he expects producers to have made up for the 2012 drought losses. Then, things should improve quickly.
"After many years of often high and very volatile feed prices, the future appears brighter for all of the animal species with feed prices moderating over coming years," he says. "With moderation should also come less volatility. The pork industry is well positioned to take advantage of several years of favorable consumer expansion driven by improving domestic consumption and foreign demand."
