much of the optimism that characterized the livestock sector a few months ago.
Just a few months ago, the prognosis looked profitable for the hog sector. Production costs were reasonable compared to today, while the marketplace was improving. The drought put a quick end to that trend, though, and now production costs are at record highs and aren't seen dropping a whole lot in the near future.
"Estimated costs of pork production have reached record high levels for the third quarter of this year, at $72 per hundredweight, and drop only to $69 for the fall and winter," says Purdue University Extension livestock economist Chris Hurt. "Hog prices cannot reach those lofty costs with losses anticipated to be about $20 per head for the next three quarters. There is little hope to cover costs until feed prices move lower, which may be the fall of 2013. That is a long horizon of losses."
And, just in the last few days, a selloff's been ignited in the cattle sector as feed costs prompt producers to sell feeder cattle at rapidly increasing levels. Feeder cattle prices have fallen 16% in the last month, reports show, and feedyard operators are starting to balk at larger purchases simply because of skyrocketing feed costs.
Ryan Goodman says his family's been "feeding hay and using feed for supplement for some time now" on their ranch near Searcy in northeastern Arkansas, an area that's been dealt one of the worst hands of drought conditions this summer. The drought's effects are widespread on both flora and fauna in that area.
"The first cut of hay really wasn't there and pastures have dried up since. Pastures look more like the arid West," says Goodman. "Many trees have shed most of their leaves, creeks and some ponds have dried up."
Goodman's family also operates the local cattle auction. Usually, he says each week's sale features around 400 head. But with many area producers looking to liquidate "entire herds because there is nothing to feed them," those auctions have changed a lot.
"During the summer months our auction would normally market 400 head per week," Goodman says. "The last 2 weeks, it's been 1,400 and 1,100 head per week, mostly small calves and cows going to slaughter."
That trend's underway in the hog sector as well, Hurt says. Market weights have declined int he last few weeks, and that's expected to continue. Many producers are also starting to take low-productivity sows to market, something Hurt says should cause a rebound in the market by next year, if producers can hang on until then.
"The decision to liquidate sows will take a bit more time, but that could begin by the end of the summer, and especially this fall. Sows that go to market and are not re-bred in August will not have a litter in December and will not have market ready hogs early next summer," he says. "The important point is that hog prices for the last-half of 2013 should begin to rise because of the quick beginning of liquidation this summer. This will likely be reflected in higher lean hog futures for the last-half of 2013."
When this drought period is all in the past and markets have recovered from Mother Nature's devastation, the livestock sector may wind up facing greater losses than those crop farmers are likely to see this fall.
"Those in the animal industry need to articulate the extreme financial stress they are likely to experience in the coming 12 to 15 months," Hurt says. "The immediate view is that crop producers will bear the brunt of the financial losses, but losses in animal industries will be enormous over the next year, perhaps becoming considerably greater than for the crop sector."
