Swine Industry Update: $70 hogs and the industry is still struggling
We are at unprecedented times in the swine industry. For the month of June, we will average over a $140 a head of revenue. While historically this price is very good, the industry is still losing approximately $15 a head (over $6 million a day). This equates to an erosion of 2-3% equity on most balance sheets. Since October of 2007, the average swine producer has lost close to 30% of their equity in a span of now 9 months. We estimate the feed cost per head going forward to be over $110-$115 a head; in the past costs were $50-$60 per head. Breakeven costs today are anywhere from $150-$160 a head depending on sale weights. With corn at over $7 a bushel and soybean meal at $400 a ton, breakeven costs will soon be close to $180-$190 a head. We also saw June of 09 hogs this week trade at over $100 a carcass hundred weight or $200 a head. That would be profitable but only at $10-$15 a head or 5-6% over your costs. As I am writing this I look back at less than 18 months ago and realize we would be happy with $65 carcass price. Times have changed!
Visit to DC
I spent Tuesday and Wednesday this week with NPPC meeting with several members of Congress and trying to give them a lenders view of the industry and what is happening currently. Below are some of the items I discussed with them:
- Current cost of production today is between $155 - $160 a head
- Current prices are $140 - $145 a head; producers are losing $10 - $20 a head
- Corn price has increased from $5.99 on the Chicago Board of trade on May 30th, 2007 to $7.27 on June 19th, an increase of $1.28 a bushel. This increase equates to close to $12 a head.
- Soybean meal futures have increased from $341.50 a ton on May 30th, 2007 to $419.50 a ton. This is an increase of $78 a ton or $5.85 a head.
- Projected breakeven prices with current feed prices are $180-$185 a head.
- Every month until June of 2009 is projecting losses of at least $20-$25 a head.
- The swine industry has already lost $1.85 billion dollars since Oct. 1st, 2007.
- The cost of feed for the industry has increased to $115 million a week more than in December of 2006.
- The average swine producer has lost 25% of his equity since October of 2007.
- Potentially, producers could lose another 50-60% of their remaining equity.
- The working capital needed to finance existing operations has increased by almost $2.9 billion in the past year. This is causing hold limit issues with lenders, higher interest rates for swine producers, and operating line restraints for producers.
- The US has a projected short corn crop; rationing of the corn crop appears likely. The swine industry is using many sources of feed to reduce their need for corn. Corn has gone from 80% of the diet down to 60%. It is still, however, the most important feed ingredient to the swine industry and it is vital that we have a supply of corn to feed our livestock.
- The swine industry in the US is the best in the world in terms of cost competitiveness. Unfortunately, the number of farms will be reduced as it becomes increasingly difficult to stay in business.
These are items I wish I could paint in a different matter, but unfortunately that would not be accurate. I encourage all of you to tell your story to your members of Congress. Producers must get politically engaged to help the swine industry be viable. We also need to encourage collaboration across the agriculture industry. The lack of corn supply is not good for any industry in the long term and ALL industries need to work together on how we can work through this supply shortage. After spending two days in DC with NPPC, it is clear to me that they are doing everything they can to help keep this industry viable; working countless hours on your behalf.