September 2, 2004
HOG PRODUCERS SHOULD EXPERIENCE A PROFITABLE YEAR IN 2004 AFTER BREAKEVEN SITUATION IN 2003
While showing improvement in the bottom line,
total economic costs were still slightly higher than total returns
for hog producers in 2003. Higher market hog prices during the last
three quarters of the year were the main reason for the improved
profit margins. Feed costs increased in 2003 resulting in higher
total costs compared to the year before. Higher market hog prices
during the first half of 2004 along with projections for good prices
during the second half of the year and lower feed costs should result
in a profitable year for hog producers in 2004.
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 total returns resulted in Illinois hog producer profits
to increase by $4.79 per hundredweight produced compared to 2002
(Table 1). Total returns in 2003 averaged $38.15 per hundredweight
produced compared to $32.25 in 2002. Total production costs for
the farrow-to-finish hog enterprises exceeded total returns by 78
cents per hundredweight produced in 2003. Feed costs increased by
$2.11 per hundredweight produced while nonfeed costs decreased by
$1.00 per hundredweight. The 2002 return was a negative $5.57. For
the five-year period, 1999 through 2003, total returns exceeded
production costs by $1.01 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 2003 averaged $38.93 per hundredweight
of pork produced, compared with $37.82 in 2002 (Table 1). Feed costs
made up 60 percent of total costs, or $23.52 in 2003, as compared
to $21.41 in 2002. Feed costs were at their highest level since
1998 (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 $15.41 in 2003, a decrease of $1.00 from 2002.
Nonfeed costs included $8.01 per
hundredweight of operating costs and $7.40 per hundredweight of
other costs. Depreciation cost decreased by $1.00 per hundredweight,
in part due to a change in method of calculating the depreciation
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 $49 per hundredweight
in 2004. Corn and soybean prices have fallen significantly during
the last couple of months from their highs early in the year as
the outlook is for a large corn and soybean crop. Feed costs will
decrease during the second half of 2004. Feed costs are expected
to average about $25.75 per hundredweight and nonfeed costs $15.75
in 2004. Total costs of production would be $41.50 per hundredweight,
or about $7.50 per hundredweight below the average price received.
If these projections materialize, 2004 will be one of the more profitable
years in recent times for hog producers.
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 61 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 www.fbfm.org.
Issued by: Dale Lattz, Department of Agricultural and Consumer Economics