Hog futures prices remain strong, giving producers an opportunity they haven’t had in several months. Now that the profitability potential has returned to the swine industry, a few critical management decisions in the coming months will play a vital role in rebuilding liquidity in your operation.
You read that right: potential. Several key factors drive this potential, with the biggest being productivity. Reports of severe health challenges in the Midwest could hinder a quick recovery if farms are affected. Other factors include the timing of implementing risk management strategies. This has never been an exact science, and there’s always a risk of leaving money on the table when making margin calls.
To those of you who have followed through with your strategies and secured substantial hog coverage: First, I applaud you for sticking to your risk management plan. Second, while you might get lucky occasionally, you will never outsmart the market. The range of profitability today is $24 to $28 per head for most producers throughout 2025. This is the opportunity the industry has been waiting for; if you haven’t acted yet, start now.
Consider two recent events that could have jeopardized this opportunity. First, two pet pigs in Oregon tested positive for H5N1. Second, President-elect Donald Trump announced plans to impose tariffs on imports from key U.S. trading partners. Since Election Day, July hog futures have climbed to over $4 per cwt.
A Pleasant Surprise
Communicate your plan with your risk management adviser or broker and your lender. How will this strategy impact your operation’s liquidity and ability to stick to the plan? Does your broker’s strategy align with your lender’s willingness and ability to fund margin calls? I’ve worked in swine lending for almost three decades, and it’s clear you’ll never perfectly time market highs. However, you do need a lender who understands the volatility that can emerge during a recovery. Misalignment between your risk management adviser and your lender’s policies can have disastrous results.
Schedule a call with all parties to be sure the strategy implemented by your adviser is understood and supported by your lender. A rising market will put pressure on your operation’s liquidity, and clear communication is critical to navigating this period successfully.
We recently completed our third quarter results for the Compeer Financial Index for swine operations, and I was pleasantly surprised. Despite the pressures of the first few months of 2024, the average producer was slightly profitable through the first three quarters, making $4.24 per head. Owner equity has improved slightly, moving from 50% to 51%. Operating debt per head is down slightly at $51 per head, and the cost of production continues to drop — all positive signs.
The most important takeaway is this: The industry is in a recovery period, and rebuilding balance sheets to 2022 levels will take time.
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