June 30, 2003
HOG PRODUCERS ARE HOPEFUL FOR PROFITABLE 2003 AFTER INCURRING
LOSSES IN 2002
After three profitable years, total economic costs exceeded total
returns for hog producers in 2002. Lower market hog prices, especially
during the last three quarters of the year, were the main factor
for the negative profit margin. Feed costs did increase some in
2002 but were still at relatively low levels. Projections for decreased
pork production resulting in higher hog prices along with lower
feed costs during the second half of the year could result in a
narrow but positive profit margin for producers in 2003.
Data for this report is summarized by University of Illinois agricultural
economists in cooperation with the Illinois Farm Business Farm Management
Individual records tabulated were from farmers enrolled in the FBFM
record keeping and business analysis program.
Lower total returns resulted in Illinois hog producer profits to
decrease by $8.13 per hundredweight produced compared to 2001 (Table
1). Total returns in 2002 averaged $32.25 per hundredweight produced
compared to $42.54 in 2001. Total production costs for the farrow-to-finish
hog enterprises exceeded total returns by $5.57 per hundredweight
produced in 2002. Lower total nonfeed costs helped cushion the drop
in hog prices. The 2001 return was $2.56. For the five-year period,
1998 through 2002, production costs exceeded returns by $1.92 per
hundredweight. The negative returns for the most part were due to
1998, when total costs exceeded returns by $15.44 per hundredweight.
Three of the past five years show a positive return for farrow-to-finish
COST OF PRODUCTION
The total cost of production in 2002 averaged $37.82 per hundredweight
of pork produced, compared with $39.98 in 2001 (Table 1). Feed costs
made up 57 percent of total costs, or $21.41 in 2002, as compared
to $20.37 in 2001. Feed costs have remained at relatively low levels
the last four years (Figure 1).
The nonfeed cost data reported in Table 1 have been divided into
two categories: "Operating costs" and "Other costs."
This classification of production costs is important when making
short-run management decisions concerning the level (volume) of
production, particularly during periods of low prices. Nonfeed
costs accounted for $16.41 in 2002, a decrease of $3.20 from 2001.
Nonfeed costs included $7.94 per
hundredweight of operating costs and $8.47 per hundredweight of
other costs. Depreciation, labor and interest costs decreased a
total of $3.46 per hundredweight.
The "Other costs" category includes depreciation, labor,
and an interest charge on all capital, although on most farms part
of the labor and the interest charge are cash costs. The proportion
of labor that is hired largely depends on the farm's size. A one-man
farm does not hire much labor, while a four-man farm may hire a
major share of the labor.
The share of the interest charge that is a cash expenditure depends
upon the owner's equity in the business. It could range from zero
to nearly 100 percent. On most farms, some share of the interest
charge will be paid in cash.
Hog prices are expected to average about $40 per hundredweight
in 2003. The size of the corn and soybean crop will have a significant
effect on feed costs. As of the middle of July, most of the soybean
and corn crop is rated in good to excellent condition. Current crop
prospects would indicate that feed costs should decrease during
the second half of 2003. Feed costs are expected to average about
$22.00 per hundredweight and nonfeed costs $16.50 in 2003. Total
costs of production would be $38.50 per hundredweight, or about
$1.50 per hundredweight below the average price received. If these
projections materialize, 2003 will result in a slight profit for
The author would like to acknowledge that data used in this study
comes from the local Farm Business Farm Management (FBFM) Associations
across the State of Illinois. Without their cooperation, information
as comprehensive and accurate as this would not be available for
educational purposes. FBFM, which consists of 6,000 plus farmers
and 62 professional field staff, is a not-for-profit organization
available to all farm operators in Illinois. FBFM field staff provide
on-farm counsel with computerized recordkeeping, farm financial
management, business entity planning and income tax management.
For more information, please contact the State FBFM Office located
at the University of Illinois Department of Agricultural and Consumer
Economics at 217-333-5511 or visit the FBFM website at
Issued by: Dale
Lattz, Department of Agricultural and Consumer Economics