A good risk management plan can sometimes mean the difference between profitability or red ink, says Lee Schulz, Extension livestock marketing economist with Iowa State University.
This holds especially true in the hog market this fall and into winter, he says. Prices are high but so are feed costs.
“Even with these prices, margins are pretty tight,” Schulz says. “You have to watch corn and bean meal prices. Costs have really risen, so you want to keep an eye on it.”
Schulz is forecasting a profit of $5.02 per head for a farrow-to-finish operation in 2022, with that figure increasing to $8.75 in 2023.
Recent USDA data indicates the size of the hog herd is slowly decreasing.
“Year-to-date we are down 3.4%, and moving forward we should be down more,” he says, adding the industry is below slaughter capacity for the first time in several years.
Schulz says producers would like to expand, but “they are really limited by these rising costs.”
Strong demand should help pick up profitability, despite decreasing export demand from China as that nation continues to rebuild its herd.
“China is still a major market, and our export portfolio is also quite extensive,” Schulz says. “We are still seeing very high prices paid for pork despite the decreasing export volume.”
For the third quarter, Schulz is forecasting prices between $97 to $101 per hundredweight on a lean basis. Fourth quarter prices should be in the $83 to $87 range, with prices between $85 and $89 in the first quarter of 2023. Second quarter prices will be in the $92 to $96 range in 2023.
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Fed cattle prices have maintained the market’s recent strength and should continue in that direction, says Elliott Dennis, Extension livestock marketing economist with the University of Nebraska.
He says export demand remains strong despite those higher prices, adding domestic demand may weaken some due to inflationary pressure.
“Beef tends to feel that more than pork or poultry,” Dennis says. “That is one potential downside in this fall’s market.”
He says any uncertainty in the market should have producers looking to manage risk.
“I’m a big believer in proactive risk management,” Dennis says, adding it’s good for producers to keep an eye on pricing opportunities as well hedging against risk early.
Feeder cattle prices are also difficult to predict for the near-term, he says.
“We’ve seen a lot of early placements and had record (USDA) Cattle on Feed numbers,” Dennis says. “Drought has had a major impact on the industry.”
He said numbers from the USDA Cattle Inventory and Cattle on Feed reports, released July 22, helped to clarify.
“The percent of heifers on feed still suggest that liquidation is ocurring and that producers are not holding back cattle for breeding,” Dennis says, adding this will ultimately influence next year’s calf crop.
“The cattle on feed number suggests that cattle are being pulled forward more aggressively, providing some credence to the idea of a drought continuing to force cattle into feed yards quicker than expected.”
Dennis added feedlot numbers were up in both Texas and Nebraska, but down in Iowa and Kansas.
He says the inventory report contained few surprises. The reduction in numbers came in at 2% confirming that culling continues at a rapid rate.