Money Matters: Your Farm: Revenue or Cost Issue?

Market hogs ( Jo Windmann )

Profitability has been challenging the past 12 months. Better export expectations and sales have encouraged market prices higher, but plants have been operating at capacity pressuring market prices downward.

Costs of production seem to have stabilized the past few years with better herd health and production numbers (for many) and fairly stable input costs for corn and meal. Corn prices ran higher in mid-June and traded at those levels until mid-August, pushing up costs in the second quarter and more noticeably in the third quarter.

Additional fixed asset investment in facilities and biosecurity have slightly increased production costs the past 12 months. In addition, labor costs, including recruiting and retaining employees, have pushed overall costs higher. For the most part, and for many, these added costs are offset by better production, much of which is driven by animal health.

  Revenue Cost Profit
Quarter 4, 2018 $60.36 $64.93 ($9.60)
Quarter 1, 2019 $60.17 $65.60 ($11.40)
Quarter 2, 2019 $81.45 $66.93 $30.49
Quarter 3, 2019 $72.56 $68.61 $8.29
Quarter 4, 2019 rolling $68.64 $66.62 $4.45

Revenue and cost based on $/carcass cwt.
Profit on a per-head basis (210 lb. carcass) 
   

Revenue

Revenue varies a great deal as clients have a wide range of agreements with packers to price pigs. The prices in the table reflect an average of many markets, including Iowa-southern Minnesota, Western Corn Belt, prior day average, CME Index and Pork Cutout, and are reflective of the actual price received for a substantial sample of the industry. 

As a reference point, the Western Corn Belt average base price in the third quarter of 2019 was $62.01 and the pork cutout averaged $77.54. It is noteworthy the Western Corn Belt price was not published on 12 trading days in July due to confidentiality reasons.

Profit

It appears the fourth quarter will be tough, but we expect profits to improve the next 12 months. Recent trade news is somewhat encouraging, but the markets have a wait-and-see attitude related to trade.   
 

More from Kent Bang:

Making Sense of the Cash Hog Market

Explosive Volatility: Pork Industry’s Norm

Money Matters: Focus on Swine Production Costs
 

 
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