Hog Producers See Hope After the Wreck of 2021

For John Nalivka, president of Sterling Marketing, the March Hogs and Pigs Report showed that there’s a great deal of caution in the pork industry right now despite some of the highest prices the industry has seen in some time.

“As we look back at what happened with the plant shutdowns as a result of COVID last spring and the backlog of hogs, the entire situation may not have been a disaster, but it certainly was a wreck,” Nalivka says. “I think this report really shows that producers are very, very cautious about this entire situation until we know we're out of this and we're moving forward.”

Although prices are high, he adds there is still uncertainty and challenge for everyone in the industry, including those in pork procurement for both foodservice and retail as well as processors.

Farrowing Intentions 
This is the first report to show a drop in farrowing intentions going into the second quarter from the previous year. For the past six years since the industry got on the other side of the porcine epidemic diarrhea virus (PEDV) outbreak, inventories have been growing and reaching new records. 

Source: Sterling Marketing

"I think that’s significant,” he says. “That really says a lot about what last year did to hog producers in terms of their overall thinking on the industry and trying to keep things in balance. I think the farrowing intentions for the second quarter of this year being down 3% shows that they don’t intend to kick this back into gear until they know they are somewhat on a smooth path going forward again without any roadblocks and problems.”

Margins are good now, he adds. By his estimate, pork producers are making about $50 per head on market hogs, with $95 hogs lean carcass value on the Western Corn Belt pricing system. 

He believes the report provided good information in terms of the pork outlook going forward and indicates the industry should have a pretty good supply based on the farrowing intentions, albeit not what the industry earlier thought. 

Carcass Weights 
One of the questions that remains on his mind is where will weights go during the remainder of 2021? The industry saw record-high weights coming out of third quarter 2020 into the fourth quarter and then coming into 2021. Carcass weights have dropped back down to a more normal level, he adds. 

“I think with the tighter supply of hogs and high grain prices, that weights should come down to under where we were last year,” he says. 

Source: Sterling Marketing

In terms of lean carcass value, he doesn’t expect to hit the record prices of 2015, but he thinks the industry will bump up close to those prices going into the summer. 

“Never say never,” Nalivka laughs. “Think of what PEDV did – one lost pig crop resulted in a very different situation.”

Regarding his price outlook, he has the second quarter average on lean carcass value using the Western Corn Belt pricing system at $92. He has third quarter at $80 and fourth quarter at $73, resulting in an $79 average for the year, which is 67% higher than a year ago on that particular value, he adds.

“It's hard not to compare to a year ago because that's what we do,” Nalivka says. “But you would just like to take last year off the books, because it's such a terrible comparison and things look so bad in terms of the prices and lean carcass value last year.”

The China Trade-Off
Exports and feed prices are two things Nalivka is watching closely this year, especially in regard to China as producers there rebuild their hog herds.

“At some point in the not-too-terribly-distant future, they will have their hog herd put back together and that will impact our pork exports going to China,” he says. “At some point, we’ll be trading off the pork for corn.”

U.S. pork producers are faced with high feed costs on the finishing floor. But Nalivka says they aren’t going to trade off $50-per-head margins now for the uncertainty of building this herd and not knowing exactly where the industry will be. 

“It seems like a long time to get to December of this year, but it's not that far away. I'm somewhat pleasantly surprised to see that they have taken that cautionary direction,” he says. “It gives us a little more direction from the standpoint of looking at where the industry is heading over the next 12 months.”

More from Farm Journal's PORK's on the March Hogs & Pigs Report:

Hogs and Pigs Report: Opportunity Ahead to Recapture 2020’s Losses

A Bullish Supply Shock in the Pork Industry

Economists Forecast Hog Prices Following March USDA Quarterly Report

Surprise Supply Shock in USDA H&P Report Sets Stage for Improved Hog Prices