THE U.S. pork industry started 2014 having lost money in four of the past several years, which included two of the three worst years on record in 2008 and 2009, according to the National Pork Producers Council's recent written testimony for the House subcommittee on livestock, rural development and credit.
After some recovery in 2010 and 2011, the council said record-high feed costs in 2012 and early 2013 pushed producers' cumulative profits to their lowest point since late 2004.
While profit margins have improved due to lower crop prices, porcine epidemic diarrhea virus (PEDV) has become the latest obstacle for pork producers to overcome. Despite the disease, however, future hog feed prices look favorable.
Chad Hart, an agricultural economist at Iowa State University, said although U.S. hog producers have seen their feed costs come down dramatically over the past year, feed prices have built back up again over the past three months.
"We went from looking at low-$4.00 (per bushel) corn, and we've been seeing the $5.00 levels recently," Hart explained. "Right now, the market on the feed side has a little strength to it, basically waiting to see how good the upcoming crop is going to be."
Feed prices are sitting a little higher than they were three months ago, but Hart said they are not as bad as year-ago prices.
"That's likely to continue for the next month or two as we try to figure out: 'How much crop do we have coming toward that feed market this coming fall?'" he added.
As for soybean meal, Hart predicted that the market will be pressured upward as well.
"Even though we had really good crops last year, we've got really good demand for that crop still pulling those markets higher," he said.
While Hart does expect the market to remain that way over the next couple of months, he said the trade will shift gears toward the new crop by late July/early August.
Hart's long-term outlook for feed prices is even better news for hog producers.
"Right now, given the planting progress that we've had and given the amount of acreage that U.S. farmers are going to throw at corn and soybeans, we are seeing tremendous potential for another year of record crop production, which should mean lower feed costs to pork producers as they look out into the fall and winter," he said.
For now, the most pressing issue is PEDV and its impacts on the markets. Hart explained that PEDV affected the feed use numbers in the most recent U.S. Department of Agriculture supply/demand report. The disease will continue to affect the markets in the future.
"We saw a significant downshift in meat production, which means a significant downshift in the numbers of animals that are out there to produce that meat. This means a significant downshift in animals that need feed," he noted.
According to Hart, the feed markets move in three ways.
The poultry industry is first because it is able to expand fairly quickly and has done so in recent years.
The pork industry is next and tried to expand, but PEDV stopped that effort.
The cattle industry is third and never has been able to turn around. Hart said it's going to take a good year to a year-and-a-half to build the cattle feed number back up again.
"We have things pulling in every direction," Hart explained. "While the pork industry is dealing with PEDV, they are also looking at the best feed prices in years."
He added that the agriculture trade "is always a balancing act. We are always trading between each other, especially between crops and livestock."
For the past several years, crop producers have had great prices, but Hart said he expects the next three to four years to favor livestock producers.
Hart noted that the wild card he is watching is on the soybean side.
The final soybean acreage numbers could mean a big slug of soybean meal hitting the market come fall and winter, he explained. "This could help really improve and continue to build the livestock margins going forward," he added.
"You are going to see more feed cost variability on the soybean side than you will corn," Hart concluded.
USDA's National Agricultural Statistics Service released the latest crop planting progress numbers on May 27. The new numbers for corn planting revealed that farmers had matched the five-year average pace of 88% (Figure). USDA also reported that corn emergence was at 60% after warmer temperatures finally reached the Midwest.
Soybean planting progress was reported to be at 59%, slightly ahead of the five-year average, and plant emergence was at 25%, 2% behind the five-year average of 27%.
Favorable weather conditions last week allowed farmers to make additional planting progress, which will be reported in the June 2 "Crop Progress" report.
Last week, market activity suggested that the trade had conceded that 2014 crop planting will conclude on time.
Tight old-crop supplies kept soybean prices strong last week, but markets did not sustain the highs from the prior week.
According to Arlan Suderman, senior market analyst for Water Street Solutions, those highs were the result of concerned farmers in Argentina using their soybean crops as financial security against a weakening peso.
Suderman suggested that Argentine farmers might hold onto their soybeans until late into the summer, which will make it more difficult for the U.S. to sustain demand.
Nearby soybean prices were lower last week following the Memorial Day weekend but were still considered strong.
Last Tuesday, soybeans posted their largest losses in a week, with July contracts closing at $14.8875/bu., but they were able to recoup some of those losses on Wednesday, when nearby prices settled 9 cents higher at $14.9775/bu. The price dip was attributed to clear weather for spring planting. On Thursday, the July contract did surpass $15.00/bu. during the day but settled at $14.99/bu.
Corn prices lost some ground as farmers have made significant planting progress over the last couple of weeks and a large 2014 crop is expected.
While there was a moderate increase in corn prices on May 23 before Memorial Day, the markets were fairly stale last week, with only slight fluctuations. July contracts opened at $4.745/bu. last Tuesday but closed lower on Wednesday at $4.6975/bu. Market activity was uneventful on Thursday, with nearby prices settling at $4.695/bu.
Bob Burgdorfer, senior editor for Farm Futures, said prices are down nearly 9% since early May, when it became apparent that spring planting would be completed on time.
Feather meal prices have been dropping rapidly, according to one veteran protein trader. The source said prices have dropped approximately $120 per ton over the last month. A lack of exports is being blamed, but the trader said because feather meal prices were so high recently, poultry producers may have started using alternative ingredients in feed rations.
He also said organic fertilizer demand was strong over the past few months as home improvement stores stocked their shelves, but a decline in that demand recently could have also contributed to the lower feather meal value.
As for meat and bone meal, the source said everybody keeps trying to talk down the price. While prices have gone down a little, he said they haven't dropped as much as some expected.
Additionally, he said blood meal prices fell significantly over the past few months, but demand is starting to pick up a bit.