Higher Weights Helped Farmers Combat Effects of PEDV

Higher Weights Helped Farmers Combat Effects of PEDV

Purdue economist reflects on PEDV's short and long-term impacts on the pork industry and prices

The idea that hog numbers would be greatly reduced in the wake of the Porcine Epidemic Diarrhea virus outbreak boosted lean hog futures prices, says Purdue economist Chris Hurt, but markets are now beginning to understand that though PEDV did some damage, producers have been able to compensate for a substantial portion of lost animals by much higher weights.

Purdue economist reflects on PEDV's short and long-term impacts on the pork industry and prices

Despite this understanding, Hurt says in a University of Illinois Farmdoc entry, there are still critical questions surrounding the disease that have to be answered: What were baby pig death losses from January through March that will determine July through September slaughter supplies? and Will the impacts of PEDV or a related virus return next winter?

"As it turns out, the March Hogs and Pigs inventory count from USDA provided reasonable estimates of the impact of death loss from PEDV," Hurt says. "USDA's estimate of the inventory of pigs weighing 50 pounds or more that formed the bulk of March, April, and May supplies was down 3.6% and the actual slaughter for those three months was down about 5.5%."

According to Hurt, producers are compensating for the smaller head count with sharp increases in market weights. In January and February, he says, weights were up about 2% above the average in the previous year. Once hog prices soared to record highs in February and March, producers have continuously increased weights. In the month of May, live weights reached 4.7% above the weights in May a year earlier.

Related: USDA to Require PEDV, Swine Delta Coronavirus Reporting

For this year-to-date, Hurt says the total number of hogs coming to market has been down 4%, but weights have been up 3% so that the total supply of pork has only been down a modest 1% compared to the first five months a year-ago.

"The biggest declines in hog numbers so far this year were in the months of March – down 7%, and in April – down 5%. Slaughter numbers were only down 4% in May," he says.

While there is always some questioning of USDA counts, the reasonable accuracy of the March report provides some added confidence in their numbers headed into the summer, according to Hurt. That report suggested the number of pigs available for market in June, July, and August would be down about 4%.

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Assuming that weights continue to be 3% to 4% higher, this implies pork supplies for the summer will be unchanged to down 1% relative to the summer of 2013.

"Such prospects are hardly a ringing endorsement for super high prices of hogs," Hurt writes.

Fall hog supplies will be drawn from the spring farrowings, where USDA reported producers' intentions were up 2%. Assuming a 1% drop in the number of pigs per litter with some continued PEDV impact and 2% higher weights, this implies that the fall pork supply will be up 2% to 3%, Hurt says.

Low sow slaughter numbers suggest the industry began to move toward expansion starting in September 2013 when corn prices dropped sharply. Since that time, sow slaughter has been down about 6% and that level of reduction has continued in 2014.

In the March Hogs and Pigs report, breeding herd numbers were up fractionally, but those numbers should be expected to rise to a couple of percent higher in the estimate of the June 1 inventory to be released on June 27.

According to Hurt, demand has remained strong in 2014 as beef supplies have been down 6%. With retail beef prices at record highs, some shoppers have substituted pork for beef.  Pork trade has also contributed to strong demand with exports so far this year up 10%.

"Hog prices reached their highs near $100 on a liveweight basis in the last week of March and have been in the process of coming "back to earth" since. In recent days, prices have fallen to the low $80 level. A current futures based forecast suggests hog prices will be in the mid-$80s this summer before falling sharply this fall with a fourth quarter average near $70. Further moderation in prices is expected into 2015 with winter prices falling again to the mid-$60s and spring and summer 2015 prices in the mid-to-higher $60s," he says.

Hurt adds that the pork industry is in the midst of record profits in the second and third quarter of this year with profits for those not strongly impacted by PEDV over $70 per head on average for the six-month period. Those profits are expected to decrease in the final quarter of 2014 to about $40 per head.

Related: Retail Beef and Pork Prices Continue to Push Into Record Territory

Prospects for the first three quarters of 2015 also appear positive, he says, with estimated profits at about $20 on average. Sharp declines in soybean meal prices this fall are expected to be an important contributor to lower costs.

However, with a continued buildup of the breeding herd, and reduced impacts from PEDV next winter, hog prices could drop back to levels that are closer to breakeven by late 2015 and into 2016, Hurt says.

The horror of heavy death losses from PEDV was emotionally difficult for any producer to experience, he says, though the industry is now experiencing some positive economic benefits of that disease.

He believes the biggest concern for the industry now is a potential overexpansion of 2015 pork supplies. That excess expansion could be based on too large of a breeding herd expansion followed by a winter with limited damage from PEDV and a big surge in 2015 poultry supplies as well.

Source: University of Illinois Farmdoc

TAGS: USDA
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