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Hog market looking up in 2014

By Jean Caspers-Simmet

Date Modified: 11/22/2013 11:36 AM

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DUBUQUE, Iowa —USDA analysts dropped a bomb with the September hogs and pigs report, said Lee Schulz, Extension livestock marketing economist, at the Tri-State Ag Lenders' Seminar in Dubuque.

Coming into the report, everyone expected a big ramp up in the breeding herd with potentially cheaper feed costs for the next 12 to 18 months. It was also the first report to show the impact of Porcine Epidemic Diarrhea Virus.

The expectation was reduced litter size and fewer younger pigs.

"The report didn't really show that at all," Schulz said. "I think there will be some revisions to that report, but I think we have to take the data for what it is."

With the report, expectations have been altered. Expansion appears more cautious after a couple of tough years.

While the report showed PEDV has had minimal impact on overall market hog supplies, new cases have been reported in North Carolina and Iowa where much of the breeding inventory is located, Schulz said. More pigs are being moved in the fourth quarter, which creates more potential to spread the disease. Also, veterinarians say that the disease likes cool weather.

Even during the tough economic times the past few years, market hog inventory has increased, especially in Iowa.

"We have a ton of capacity for more hogs in Iowa," Schulz said. "We are so competitive in feeding hogs here."

Sow and gilt slaughter for the fourth quarter is down as is total hog slaughter. Fourth-quarter numbers often bump up against slaughter capacity and bring prices down. That hasn't happened this year.

The decrease in slaughter numbers has been mitigated somewhat by an increase in weights although that's misleading because hogs were marketed aggressively a year ago due to high feed costs. Weights are up considerably compared to the five-year average.

Coming off drought and high feed prices, farrow to finish returns have returned to profitability and are showing projected profits through the end of the year and all of 2014, Schulz said. A lot of that is due to strong hog prices. The opportunity exists to lock-in huge profits in the second and third quarters 2014.

Exports are expected to be strong with rumors of China coming into the market and buying a lot of U.S. pork.

"When China comes in, they come in hard," Schulz said.

Breakevens for hogs look good with lean hog futures over $90 per hundredweight carcass through August 2014.

Schulz forecasts expansion in 2014 into 2015, and relatively supportive prices due to strong demand.

He forecasts average carcass prices of $86 to $89 per hundredweight for the fourth quarter of 2013, $87 to $91 for the first quarter of 2014, $89 to $94 for the second quarter, $88 to $94 for the third quarter and $80 to $87 for the fourth quarter. For 2015 he projects an average of $81 to $89 for the year.