Pork and Beef Producers Hope for Better Times by Late-2013

The 2012/2013 drought is a dominant force for the pork and beef industries as it has raised feed costs and pushed total costs of production above revenues. The resulting financial losses will continue for much of the first-half of 2013. If pastures, forages and feed crops can return to more normal production in 2013, then both the pork and beef industries will face a profitable last-half of the year. That welcome return to positive margins should begin interest in expansion in the fall of 2013.

Pork producers have lost about $30 per head on average during the last-half of 2012. Fears in July and August that losses could be even greater caused some sow liquidation that is thought to have resulted in about a 2% reduction of the sow herd. This cut back in sows in combination with lower market weights will eventually help modestly cut pork production and lead to improving pork prices. Losses are expected to continue at about $20 per head in the first quarter of the 2013, but improvement will be on the way by spring as feed costs may begin some decline with lower soybean meal prices and with a strong spring hog price rally. A return to breakeven is expected by mid-spring. If so, the losses from the drought will have been intense, but relatively short in duration.

Live hog prices averaged near $62 for 2012 with costs closer to $68. Hog prices should progress upward through the first-half of 2013 reaching the lower $70s for second and third quarter averages. Costs reached their crest last summer near $75 per live hundredweight. Those will drop to near $70 next spring and summer. A further drop in costs to the low $60s will be in order by the fall if near-normal crops become a reality next summer.

Drought has been particularly unkind to the beef industry. Not only have higher corn and soybean meal prices caused feedlot managers to lose large amounts on feedlot cattle, but lack of forages has forced brood cow operations to cull cows and reduce the size of the herd. Brood cow numbers were down 3% at mid-2012, and the deepening Midwest and Great Plains drought is expected to mean cow numbers will drop again in the upcoming January inventory count.

Beef will be in really short supply in the U.S. for 2013. Per capita availability will be down another 4% next year making a total reduction of 16% since feed prices began rising during the 2006 crop marketing year. Consumers will eat the smallest amount of beef per person since the 1950’s. The small supplies mean that retail beef prices will be at record highs. If crop production can return to more adequate production levels and if pastures and forages also recover, then all of the animal industries are likely to begin expansion by the fall of 2013. The broiler industry will be able to increase consumer supplies of chicken by late 2013. Expansion in the pork industry means that increased consumer supply will not reach consumers until the last-half of 2014. However, because of the long production periods for beef, the start of expansion of the beef cow herd in late 2013 will not increase consumer beef supplies until 2016.