The hog market looks very encouraging going forward, says AgriTalk host Chip Flory. But are producers feeling that incentive to go out and grow the total hog supply?
Flory asked Scott Brown, director of strategic partnerships for the College of Agriculture, Food and Natural Resources at the University of Missouri about his perspective on the latest USDA Hogs and Pigs Report and what that means for hog producers going forward.
Revisions and More Revisions
USDA made some significant revisions in the Sept. 1 Hogs and Pigs Report, most notably reducing the Dec. 2020 to Feb. 2021 pig crop down 1.292 million head.
“That really set the stage then for inventory that we got in this report to be well below expectations,” Brown said. He expects to see revisions in March 2021 through May 2021 as well.
The market hog inventory was down 4%, at 96% of year-ago levels. And that 4% reduction in market hogs was a reduction from a lower level than what was on the books, Flory noted.
It was in the lightweight categories where the industry saw the biggest change relative to pre-report estimates as well, Brown pointed out.
“That market hog number is a concern,” Flory said. “You hate to talk about not producing enough to keep up with demand. But are we in a position where we’re not going to produce enough to keep up with demand?”
Brown believes the industry will be in a situation in 2022, based on where it’s sitting now, where it pushes less supplies at U.S. consumers, especially if there is some modest growth on the export side of the equation.
“I want to be careful about saying ‘not enough’ to consumers,” Brown said. “We were pushing at the high end of what we normally push out to domestic consumers. To me, it just gives us some opportunity for some better pricing as we look at 2022.”
To Expand or Not to Expand?
Flory questions if the industry is responding to pricing incentives or other non-economic forces at play such as labor, getting hogs to market when they are supposed to go to market, disease issues and more.
“I think we all understand labor’s probably at the top of that list of issues at play,” Brown said. “And, not only labor on the farm that might be short, but also labor to make sure we have enough capacity to process those hogs has been on producers’ minds for much of 2021.”
For example, even if producers wanted to expand and build a new facility, the cost to build and the potential delay in getting materials in has kept many from pushing the button to build, he added.
“I would remind us that maybe in 2022, that changes. So, we’re going to want to be prepared for what could be some expansion coming as we get into 2022,” Brown said.
The only number in the report that hinted at expansion, Brown said, was the Dec through Feb. 2022 farrowing intentions that came in at 101.4, above pre-report range.
“This is the only number suggesting some growth starting to happen in that first quarter of 2022 in terms of farrowing intentions, but still we’re starting from a pretty low base, so I want to be careful about overstating that as well. That’s the only piece of the report that would suggest to me, we’re talking about any kind of expansion as we start to look in 2022,” Brown said.
Profitability Potential
The opportunity for profitability in a farrow-to-finish operation feels real right now, Flory said.
“I know that we’re dealing with higher feed costs, but it feels like and looks like there’s some profit potential out there for the for the time being,” Flory said.
Brown couldn’t agree more. Feed costs have gone up, but even so, solid hog prices have helped. He encourages producers to pay attention to the demand side, however.
“If exports were to slow as we go forward, if domestic demand were to take a hiccup, those are the things that I look at where futures markets are today and say there are opportunities to let someone else have some of that downside risk,” Brown says. “We want to be careful as the supply side of the industry, not to get caught with, ‘well, this is all great news, because we don’t have as many sows as we thought we would have.’ We’ve got to still be watching demand carefully.”
More from Farm Journal’s PORK:
Lean Hog and Pork Cutout Futures Surge After Hogs and Pigs Report
Economists Forecast Hog Prices Following September USDA Quarterly Report
