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Economic Conditions: Swine

This is the second in a series of blog posts about the economic conditions of various commodities for the quarter ended June 30.

The second quarter was very profitable for hog producers based on open market margins exceeding $70 per market hog sold.  Cash prices averaged near $86 per cwt., while farrow to finish break-evens fell to below $60 per cwt. as feed costs continued to decline.  Cash prices ended the quarter at $93 per cwt., about $20 per cwt. above a year earlier. The higher prices were primarily driven by supply concerns from Porcine Epidemic Diarrhea virus (PEDv), but also by continued strong domestic and export pork demand, with the U.S. pork price still below most other world markets.  Higher beef prices were supportive of hog prices.

The USDA reported the breeding herd at 5.85 million head, slightly smaller than a year ago at quarter-end.  The market hog inventory was down 4.5 million to 56.3 million due to first quarter piglet losses from PEDv.  On a combined basis, the 62.1 million total hogs was the lowest inventory level since 2007.  Quarterly sow production fell from 10.31 to 9.78 pigs saved per litter.  Year-to-date slaughter was off less than 1 percent from 2013 as producers were able to increase weights to largely offset reduced numbers.  However, a larger drop in marketing is expected over the next few months based on the most severe piglet losses occurring in February and March in the upper Midwest.

Despite high profit margins, the lack of an increase in the breeding herd indicates expansion efforts have been muted.  Many producers have been focused on herd health as a result of battling PEDv.  In addition, a large percentage of production was hedged during this period at prices below current prices, which resulted in reduced cash flow due to lower revenues and the need to margin positions as futures prices rose in tandem with cash prices.

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