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Pork industry profitability and growth evident at SD Pork Congress

SIOUX FALLS, S.D. — Pork producers are coming off a profitable year in 2017 with strong exports and growth in the industry, and that was evident at this year's South Dakota Pork Congress in Sioux Falls, S.D..

Pork producers started 2017 with a dismal outlook in part due to projections of record hog numbers in the U.S., which were expected to depress prices. However, despite the large supplies, hog prices and profitability far exceeded expectations.

Steve Meyer, economist with Kerns and Associates, says the profit per pig for 2017 was a pleasant surprise.

"Our model right now based on the Iowa State parameters, which really models the best producers from a cost standpoint, is $29 and change average for the year which would be the second-best year in the last 10," he says. "So, a remarkably good year. Average producers would be somewhere in the $20 per head range."

Several factors contributed to the positive year for pork production.

"That's clearly a combination of low feed costs and very strong lean hog futures prices," says Meyer. However, it's also a function of very strong demand, domestically and internationally. "It is a record year for pork exports, and it's been better than anybody thought. We had a forecast of 4 percent; it's going to be up almost 8 percent for the year," Meyer says.

Summer lean hog futures are already pointing towards the same type of strong demand in 2018. However, Meyer says his firm's projected cash prices aren't as optimistic.

"We've got $85 summer futures, and we're in the mid-$70s on our cash forecast," he says. The reason for the difference is because of the forecasted increase in pork production again in 2018.

"It's clear that slaughter and production are going to be much larger than they were last year," Meyer says. "We've got the first half up about 2 percent to 3 percent on harvest and the second half up 4 percent to 5 percent. So, you've got big increases coming."

South Dakota Pork Producers Council President Ryan Storm says the banner year for pork production resulted in an upbeat mood among producers at their annual meeting. It also brought in record attendance and trade show exhibitors.

"2017 has been great for us, just for the simple fact that we have a good number of exports going on right now which is keeping our prices right up there where they should be. Plus, our feedstuff prices are manageable where we can make a little bit of money at it," he says.

The profitability in the pork business and the opportunity for young people to get into farming are driving the growth seen in the industry. Glenn Muller, SDPPC executive director, says they are excited about the trends.

"According to NASS (National Ag Statistics Service) data year over year, 2016 through 2017, which we just completed, we saw 12 percent growth in the state," he says.

Many existing operations are expanding, but the next generation is also coming in after finding the lack of available and affordable land as a barrier to grain farming.

"There's various business models out there where they can enter into a contract arrangement and feed for someone else or actually own the hogs themselves, without getting the risk to the point they can't sustain it," Muller says.

Despite some of the pushback, Muller says there is more room for growth in South Dakota.

"Sometimes the opposition says the state is being overrun with hogs, and that's not the case according to the statistics from NASS. In December of 2017 we showed 1.5 million head of hogs and total whole hogs on the inventory for South Dakota, versus 1935 (when) we had 3.1 million head of hogs in the state of South Dakota," he says.

He says the difference is today's operations are larger.

"So rather than the 23 hogs per farm that we saw in 1935, we're seeing larger operations now, and that's concerning to some folks, and there's some myths associated with that," says Muller.

The pork processing industry is also embracing the U.S. herd expansion, which is exciting to SDPPC Vice President Craig Andersen, a pork producer from Centerville. He points to the new Seaboard Triumph plant in Sioux City, Iowa, that started processing in September and the plans for several other plants to come on line in the next two years. Additionally, he says there are expansion plans at local facilities.

"We have hopefully some remodeling improvements at Smithfield here in Sioux Falls" Johnson says.