Hog Farmers May Not Bring Home Much Bacon

Hog prices are down and feed costs are going up, so it is going to be rougher on pork producers this year, an Agriculture Department analyst says.

Profits dropped in the fourth quarter of 1987 and “will probably continue lower” through most of this year, according to economist Kevin Bost of the department’s Economic Research Service.

“Net returns in 1988 will be down substantially and may average only slightly above break-even (levels), unlike the relatively good years of 1986 and 1987,” he said. “Lower hog prices will account for the bulk of the decline, although higher feed costs will contribute.”

The darker outlook already is having an effect on production plans. As of Dec. 1, figures showed that hog farmers continued to expand herds, but the increase is slowing.

Sows Bred Last Spring

In the 10 major hog states, which account for about 80% of the nation’s pork, the December survey showed the number of sows farrowing in September, October and November rose 7% from a year earlier, Bost said. Those sows were bred last spring when profits were highest.

But farrowings this spring, March through May, were expected to be up only 2% from a year earlier. These sows were bred in November, December and January. The survey was conducted in the first two weeks of December, when hog prices declined to break-even levels, he said.

“If these intentions are carried out, the production response to declining profitability will have occurred more quickly than in the past,” Bost said. “Operators may be more sensitive to overproduction and less willing to finance major expansion with borrowed funds.”

Feed Costs a Factor

Bost added: “With only modest returns expected in 1988, the growth in hog inventories likely will slow further. Unless feed costs show a surprising increase, though, it is unlikely that returns will drop low enough to stimulate significant liquidation of breeding animals before the end of the year.”

Department economists forecast that market prices of hogs going to slaughter at the major markets may average in the range of $41 to $47 per 100 pounds of live weight this year, down from $51.69 in 1987.

Bost, writing in the March issue of Agricultural Outlook magazine, said per capita pork supplies could be up 7% to 9% this year, with the largest year-to-year increase coming in the third quarter.

“After a 16% increase from 1985 to 1987, retail pork prices in 1988 are expected to decline 5% to 7%,” he said.