Sort & Cull

Even for the innocently inquisitive, asking about the potential expansion of the swine herd can be a dangerous venture. You either best know your audience or limit your idle conversation to saloons with strictly enforced check-your-guns-at-the-door rules.

As you might have guessed, I've made the mistake of being too casual about the expansion possibility with the wrong producers more than once this year.

Now I'm not saying that pork producers are a cranky bunch by lot. But there's nothing like unrelenting waves of red ink to make even the most amiable souls in livestock production downright cross and irritable.

According to the pencil pushers at Iowa State, farrow-to-finish operations have lost money in 15 of the last 21 months. For the entire 21-month period (i.e., dating back to October 2011), producers suffered an average loss of $6.50 per market hog.

Assuming an average barrow and gilt slaughter of roughly 9 million head per month, this sorry scorecard suggests industry equity has been depleted by at least $1.2 billion since late 2011.

My mother was famous for telling her children that there are no good reasons to be in a bad mood. While I still get her point, the crippled balance sheet of livestock producers through the recent era of $7 corn just might make some passing frowns justifiable.

But with that cautionary note in mind, my guess is "reckless" expansionary talk will soon be on the increase (no less among the walking wounded within the production sector) thanks to at least two prominent aspects of the late July market: 1) the back of new-crop corn prices appears to be broken; and 2) the premium structure of 2014 is starting to get hammered by would-be commercial hedgers.

December corn closed the week at $4.76, a short quarter below last Friday, 91 cents below the late May high and essentially $2 below a year ago. A bumper feed crop may not be made, but market perceptions have clearly shifted in that direction thanks to cool and wet forecasts for the heart of the Corn Belt through the critical stage of pollination.

Perhaps more telling or suggestive of expansion plans is the way 2014 lean hog futures have turned over since late June. For example, July '14 closed the week at 88.60, 350 points below the high posted on June 27.

If faltering corn and meal prices continue to drive cost of gain factors back toward the low $50s, profitable hog crushes will seem too sexy to resist.

Who know? Getting emotional over questions of herd expansion could actually be a happy thing once again.

For more John Harrington comments, visit http://www.feelofthemarket.com/…

(AG)

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