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Winter 2020 increases weights, helps with margins

Winter 2020 increases weights, helps with margins

While 2020 certainly taught the livestock industry that there are no guarantees, there appears to be room for optimism in 2021.

Both hog and cattle futures indicate good news, especially in the second quarter.

Lee Schulz, Extension livestock marketing economist with Iowa State University, says after a sluggish first quarter, hog prices should rebound in the second quarter.

He says first quarter lean hog prices should average between $63 and $67 per hundredweight, but will push into the $70s over the next several months. Second quarter prices should be in the $70 to $74 range, with prices averaging between $74 and $78 in the third quarter and $63 to $67 in the fourth quarter.

Those prices would be roughly 15% higher than in 2020.

“Year-to-year comparisons are difficult because of what happened in 2020, but I do expect higher prices, and a lot of that will be driven by what we see in the second and third quarters,” Schulz says. “I think we’ll be going to more seasonal prices in 2021.”

He says the industry is back to 2019 slaughter levels, with weights heavier than a year ago.

“It’s been a tremendous winter so far as the weather goes, and with the early harvest, that has helped increase weights and helped the margins,” Schulz says.

Sow numbers were a bit lower than a year ago as of Sept. 1, while farrowing intentions were also down. But Schulz says with an improving price outlook, producers may be tempted to hold on to sows.

“Feeder pig prices are very strong, which suggests we have space available and are optimistic about 2021,” he says.

One caveat is rising production costs. With higher grain prices, Schulz says those costs are up about $5 per hundredweight.

“While prices may be similar to 2019, production costs will likely be much higher,” he says.

Another key factor is the export market. Schulz says China has bought pork to be delivered in 2021, and he expects export numbers to be similar to 2020.

Stronger pork demand has also cut into cold storage totals, with that number down 25% from a year ago.

Fed cattle prices should also rebound some in 2021, says Elliott Dennis, Extension livestock marketing economist with the University of Nebraska. He says a lot of cattle should be marketed in the second quarter, with prices averaging between $115 and $120.

“That is the start of the grilling season, and I think there’s a lot of optimism that people want to get back to doing things like they’ve always done in the past before this virus,” Dennis says. He expects fed cattle prices to fall back in the fall.

He says the industry is on the downside of the price cycle, meaning cow numbers will likely not increase over the next year or two. Cow slaughter and heifer retention numbers reflect that sentiment.

He says feeder cattle prices should be very strong in 2021.

“I would say 500- to 600-pound feeders should be priced in that $165 to $170 range, with 700-pounders coming off grass in the $150 range,” Dennis says. “Those prices are about $8 to $10 per hundredweight higher.”

Higher corn prices are cutting into margins, but Dennis says those prices are likely not sustainable over the long-term.

Additional concerns include the export market and uncertainty with the new presidential administration.

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Jeff DeYoung is livestock editor for Iowa Farmer Today, Missouri Farmer Today and Illinois Farmer Today.

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