The great drought of 2012 is making a significant impact on livestock producers.
A small harvest is driving up prices that will likely remain high after rain begins to fall.
Steve Meyer, Paragon Economics: “The drought is taking its toll, going to have a long tail on it, though. You’ve got some financial resources there in some producer’s hands that allow them to weather the storm, we’ve seen an increase a cost up, sometimes the forecast for next year has been $1/pound on carcass weight pigs. Its down to 95 cents now. Those kind of cost increases are tough, they’ve put producers in position to lose a lot of money this fall, between $40-45/head for the pigs sold October, November, December.”
Steve Meyer of Iowa-based Paragon Economics says all producers will feel the pinch, but good management may win out again.
Steve Meyer, Paragon Economics: “No, I think its going to be across the board. The small and medium producers though may have advantage as a lot of them produce their feed, so, they may not have a big of a cost level in those bushels that they have going into their herds. Where as the large producer has to buy all of their feed. So, it’s probably going to boil down to the person who is best manager, savviest at managing risk, we’ve learned a few lessons about that the last five years, and we’re better at it, but I don’t believe it will not fall particularly hard on any one sized class.”
Some producers are sending their animals to market earlier than normal, hoping to beat the high grain prices.
Hog slaughter is up 5 percent in the U.S., at near-record levels and hog prices have fallen 20 percent since June.
Steve Meyer, Paragon Economics: “I know of some large operations that are trying to take 10-15 pounds taking off market weights, well, you can’t do quickly and that’s the big reason for larger slaughter numbers the last 6-8 weeks, those last few pounds of weight, gain, have not been very economical, producers won’t put them on, pulled these pigs ahead. I think we’ll continue to do that because we’re not going to get any break in the cost situation. And if that’s the case, we won’t see slaughter get smaller, until we get to a point where you start going back to normal kind of weights. If you look at the weights they are about the same as they were 6 weeks ago, that’s a time period when they go up but when they go up 3-4 pounds, so relative to what’s happened, we have reduced slaughter weights.”
Meyer cautions producers to calculate production costs carefully to maximize profit opportunity.
Steve Meyer, Paragon Economics: “Absolutely. It is a marginal cost, marginal revenue thing. If the pound of gain is worth more than it costs to put on, you do it. If it doesn’t then you better stop, because you’ve gone beyond the point maximizing profit. Do what’s best in your operation is my advice. If you see that pound is costing you more than it’s worth, then don’t do it.”
The Agriculture Department reported that as of the end of August, pork supplies in commercial freezers were 16 percent larger than a year earlier.
The flooded market of product benefits those in the grocery story today. But that may not be the case much longer.
Steve Meyer, Paragon Economics: “Well they are going to feel the impact in a good way in the short run, those hogs are moving earlier, are going to put more product on the market. We’ve had hog prices trade down, cutout value is down, there should be some buys this fall as retailers feature that product. I think that’s going to be a positive in short run. In the long run those prices are going up, I’m talking 3rd and 4th quarters of 2013 here. It’s hired for all meats, not just pork, but beef, chicken and turkey, everything going up.”
This week, Britain’s National Pig Association predicted a “world shortage” of bacon because of the drought.
USDA said fears of a domestic bacon deficit were overblown, but Europeans may see less portions of pork.
Steve Meyer, Paragon Economics: “Oh, yes, we’re going to have plenty of bacon. I’ve told this many interviews this week, it’s not a shortage like stand in line to buy gasoline way that some of us know about, there will be lower pork supplies in the future and the prices will be higher. I don’t think there’s going to be any reason to panic you won’t be able to buy bacon over the foreseeable future anyway.”