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Optimism in Weaned Pig Prices

by 5m Editor
25 October 2011, at 8:16am

US - You cannot pick up a magazine associated with the pork industry without reading an optimistic story or column about the potential for profits in the coming 12 months. This optimism is now in the weaned pig market, wrote Mike Brumm last week.

In the past three weeks, the average spot market price for weaned pigs reported by the USDA has risen $13.52 per pig. This past week, the spot market averaged $30.92/pig delivered, up from $17.40 per pig for the last week of September. This rapid rise in price occurs every fall but this year the rise is two to four weeks earlier than historic records.

Pigs purchased as weaned pigs this past week would be hedged on the April 2012 lean hogs contract. That contract closed at $94.75 on 21 October. This past year, the Iowa-Southern Minnesota average liveweight for sales in mid-March was 275 pounds. The rapid rise in weights this fall, when combined with my conversations with producers leads me to believe that weights next March will be even heavier.

If we assume 278-pound sales weight and 75 per cent dressing percent, this yields a carcass weighing 208.5. It is always risky to estimate but if the historic mid-March basis is -$2.50 and the hogs attain an average carcass merit of $2.50, the net price will be $94.75 next March based on the latest close. This means the gross revenue per pig sold will be $197.55.

If we assume wean-finish contract payment averages $20 per pig and there is another $5 per pig in vet/med and management fees, this means a weaned pig delivered at $30.92 has $141.63 left to pay for any death loss, feed expense and miscellaneous bills. No wonder pig buyers are optimistic!

At $30.92 per pig, the spot cash market for weaned pigs is not profitable for those of you farrowing pigs. However, history suggests that within a few weeks weaned pig prices will rise a minimum of $10-15/pig. I think the demand may take prices as high as they were last winter ($52/pig) or even higher in the coming months.