Feed costs, supply top hog farmer worries

The hog business has been profitable in the last few months since USDA released a bearish Grain Stocks report in late March and grain prices started to slide. But, a lot's happened between then and now, namely a planting season that's been far from the easiest farmers all over the nation have faced.

Now, as grain farmers keep an eye to the sky -- and to the CME Group trading floor -- so, too, do hog farmers whose profit potential these days depends greatly on the size of their feed bills. And, right now, Mother Nature's the one who holds the key to those feed costs.

Handling today's volatile corn and soybean marketplace and keeping feed costs from getting out of control, thus hopefully staying north of the breakeven line, has been a hot topic among hog farmers at this year's World Pork Expo (WPX), held this week in Des Moines, Iowa.

The hog business, like the crops sector, was hit hard by last year's drought. Feed costs skyrocketed on already tight supplies tightening further. That turned black ink red for many producers up until just a few months ago, when grain prices finally moderated. Now, farmers like Mark Legan of Coatsville, Indiana, are taking extra care to manage the risk that volatile weather conditions can create.

"You've got to manage the risk. The days of selling hogs every week and buying corn every week are over," Legan, also a member of the board of directors of the National Pork Producers Council (NPPC), said Wednesday at WPX. "You've got to take the price protection when you can on the board (of trade). Since the runup in costs over the last 4 years, we've been able to manage risk that way."

There are a lot of ways to do that, Legan and Kimberly, Idaho, farmer Dave Roper agree. For Legan, it's come through both working in the cash and futures markets for procuring soybean meal and corn. But, for Roper, it's more about marketplace diversification. In addition to operating a 250-sow farm and marketing hogs to the roaster market in California, Roper serves as an environmental services adviser and raises a mix of row crops and small grains. That helps him keep his risk spread out.

"You've got to raise your own feed. We make sure we don't lose our equity," says Roper. "We could be bigger, but we have branched out instead."

Roper also works with local dairies to make use of what was once often a cheap cast-off from milk and cheese production to lock in another feed supply, though one that's not nearly as inexpensive as it was a few years back. It's similar to the relationship between crop and hog producers in the Corn Belt.

"Manure is so valuable to those crop guys. For the dairy guys in our area, the whey is more valuable to them as a feedstock to sell than the cheese they market," he says.

Legan's risk management is more focused on people. His daughter recently graduated from Purdue University and has returned to the farm to perform a fairly focused job. "Her job is to manage our positions," he says. He's hopeful that having a devoted member of the family farm business will help him avoid past missteps in his marketing and feed procurement strategies.

"We didn't buy enough old-crop corn last year. We just try to learn from our mistakes," Legan says. "We're not about hitting home runs. We just get up to bat a lot."

Roper's biggest concern for the future of the hog industry lies in the rising prices for grain and farmland. Both may be be on their way lower, but even so, it hasn't been much consolation for the Idaho farmer.

"If grain prices fall, we'll see a realignment in land prices. If we have a pretty good year, they'll probably be alright," he says. "It does make you a little bit nervous about the marketplace."

In the near term, Legan's most concerned about this year's corn and soybean crop, both in terms of having a feed supply moving forward and the price he'll have to pay for that feed.

"We need a corn crop this year after three years of below-trend yields, especially after the drought last year. In the southern half of the state, we had some real quality issues. We had 40% of a corn crop compared to the 5-year average last year," he says. "We had high prospects for this year, but we are still trying to get our beans planted."