CHICAGO – Hog farmers are slaughtering animals at the fastest pace since 2009 as a surge in feed costs spurs the biggest losses in 14 years, signaling smaller herds next year and a rebound in pork prices.
The 73.3 million hogs processed in eight months through August were the most in three years, U.S. Department of Agriculture data show. Pork supply will drop to the lowest per-capita since 1975 next year, the USDA estimates.
Crop damage from the worst U.S. drought since 1956 sent corn-feed prices surging to a record last month and may mean losses of about $44 a head for hog farmers in the fourth quarter, the most since 1998, Purdue University estimates.
Two producers in Canada filed bankruptcy petitions this month. While the acceleration in slaughtering is boosting supply now, buyers including CKE Inc., the owner of Hardees and Carls Jr. fast-food chains, expect higher prices in 2013 as herds shrink and U.S. exports rise.
Were going to see more consolidation in the industry, said Mark Greenwood, who oversees $1.4 billion of loans and leases to the hog business as a vice president at AgStar Financial Services Inc. in Mankato, Minn.
Its only going to get worse on the higher feed prices.
Futures on the Chicago Mercantile Exchange fell 20 percent since June 30, the biggest drop among 24 commodities tracked by the Standard & Poors GSCI Spot Index, which rose 11 percent.
A pig eats 10 bushels of corn to reach a slaughter weight of about 270 pounds, the University of Missouri at Columbia estimates. Corn futures rose 47 percent since mid-June after the USDA predicted the drought will cut domestic output by 13 percent. Prices reached a record $8.49 a bushel in Chicago on Aug. 10.
Producers may receive about $56 per hundredweight for hogs in the fourth quarter, and the cost of production is estimated at about $72.29 per hundredweight, said Chris Hurt, an agricultural economist at Purdue University in West Lafayette.
That means farmers may earn about $151.20 for a 270- pound hog that cost about $195.18 to produce.
Hog farmers will see huge amounts of red ink in the fourth quarter, said Jim Robb, the director of the Livestock Marketing Information Center, which is funded by the industry, universities and government.
Fewer sows will be kept for breeding, cutting output and tightening pork supply, he said. That will raise both wholesale and retail prices to records by the second half of 2013, Robb said.