August 14 , 2001
HOG PRODUCERS ENJOY PROFITABLE TIMES
After a disastrous year in 1998, hog production has become profitable again.
A reduction in pork output, strong product demand and low feed costs have all
contributed to the better times. While producers experienced their lowest returns
on record in 1998, returns above all costs in 2000 were at their highest level
Data for this report is summarized by University
of Illinois agricultural economists in cooperation with the Illinois Farm Business
Farm Management (FBFM) Association. Individual records tabulated were from farmers
enrolled in the FBFM record keeping and business analysis program.
Higher market hog prices in 2000 resulted in Illinois hog producer profits
to increase by $3.42 per hundredweight produced compared to 1999 (Table 1). Total
returns in 2000 averaged $42.65 per hundredweight produced. Total returns for
the farrow-to-finish hog enterprises exceeded total production costs by $6.13
per hundredweight produced in 2000. Continued low feed costs contributed to the
positive returns. The 1999 return was $2.71. For the five-year period, 1996
through 2000, production costs exceeded returns by 41 cents per hundredweight.
Three of the past five years show a positive return for farrow-to-finish enterprises.
COST OF PRODUCTION
The total cost of production in 2000 averaged $36.52 per hundredweight of
pork produced, compared with $34.62 in 1999 (Table 1). Feed costs made up 55
percent of total costs, or $19.96 in 2000, as compared to $20.17 in 1999. Feed
costs have decreased every year since 1996 and were at their lowest level since
1972 (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 $16.56 in 2000, an increase of $2.11 from 1999. Nonfeed
costs included $6.53 per hundredweight of operating costs and $10.03 per hundredweight
of other costs.
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 $46.50 per hundredweight in 2001.
The size of the corn and soybean crop will have a significant effect on feed costs.
Current crop prospects would indicate that feed costs should not increase significantly.
Feed costs are expected to average about $19.70 per hundredweight and nonfeed
costs $16.50 in 2001. Total costs of production would be $36.20 per hundredweight,
or about $10.30 per hundredweight below the average price received. If these
projections materialize, 2001 will be another profitable year for hog producers
and one of the more profitable years in recent times.
Dale Lattz, Department of Agricultural and Consumer Economics