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Why 2014 just got better

Posted Feb. 24, 2014

There are some good reasons why 2014 looks like the best year in the pork industry since 1990, says a leading economist.

“Our cost models are showing $27 to $28 profits per head this year, so it looks like the best year in a long time,” said Steve Meyer, president of Paragon Economics, a consultant who works with the Pork Checkoff.

That’s not just wishful thinking, he added. “Producers can take advantage of corn, soybean meal and hog prices right now to lock in those kinds of profits.”

Corn is significantly lower priced today than it has been in recent history. If there’s a good crop this year, corn prices could drop even more, Meyer said.

On the soybean side, worldwide demand remains strong, driven by China. It will take a lot more soybean acres in 2014 to bring soybean meal costs down substantially. Still, when you look at the big picture, feed costs are much lower than they were a year ago, Meyer says.

“Today, it costs about $30 a head less to raise a pig. With the kinds of market prices we’re looking at on the hog side, that’s really positive."

What about PEDV?
There are some questions about how much Porcine Epidemic Diarrhea Virus (PEDV) will impact pork supplies in 2014. It hasn’t had a major impact yet, because the first of the big PEDV losses happened last summer, and those pigs wouldn’t have come to market until December.

“I think the impact will get pretty large, however, as we go through the year and get to the summer, given the number of sow farms that were involved in PEDV breaks in October and November,” Meyer said.
The futures market is incorporating these factors. “We’ve already seen contract live highs on summer contracts, and it probably won’t be the last,” Meyer said.

While no producer wants to lose pigs, the financial impact of PEDV may be mitigated, Meyer added. “As the disease spreads, the financial impact on any one person gets smaller.”

Demand remains strong
Beyond PEDV, demand for pork at home and abroad remains a bright spot. Meyer’s calculations show that real per-capita expenditures increased virtually every month of 2013, up more than 5 percent for the year.

Pork remains in a good position relative to beef, which recently set records on its cutout values, Meyer noted.

“The Pork Checkoff’s renaming of pork cuts with new nomenclature in 2013, the ‘Grill it like a Steak’ message and promotion of the U.S. Department of Agriculture’s 145-degree cooking temperature range with a three-minute rest all play into great positioning for pork against high-priced beef cuts as we go through 2014.”

Good things continue to happen for U.S. pork in the export market, as well. Japan and Mexico remain major markets, and demand from China continues to trend upward.

“Also consider that there are other countries that are not our major markets, but you put them all together and they become a top-three destination for U.S. pork,” Meyer said. “That adds diversification to our export portfolio.”

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