What Is the Corn-Hog Ratio and How Is It Used in Commodity Markets?

Farmers and traders use various indicators to make informed decisions, and one of these is the corn-hog ratio. This metric assesses the profitability of raising hogs by comparing the price of corn, a primary feed ingredient, to the price of hogs. Since feed costs significantly impact livestock production, this ratio helps determine whether it’s economical to expand or reduce herds.

Calculation Method

The corn-hog ratio is calculated by dividing the price of hogs per hundredweight (cwt) by the price of corn per bushel. This figure shows how many bushels of corn can be purchased with the revenue from selling 100 pounds of live hogs. A higher ratio means producers can buy more feed for the same hog sales, while a lower ratio signals that feed costs are cutting into profits.

For example, if hogs are priced at $80 per cwt and corn is $4 per bushel, the ratio is 20 ($80 ÷ $4 = 20). Historically, a ratio above 20 is favorable for hog producers, while a ratio below 15 often indicates financial strain, leading to herd reductions.

Placement in Commodity Markets

The corn-hog ratio influences trading strategies and market expectations. Futures markets for both corn and lean hogs are actively traded on the Chicago Mercantile Exchange (CME), where price movements reflect supply and demand. Traders monitor this ratio to anticipate shifts in livestock production, as profitability affects herd expansion or liquidation.

A rising ratio suggests producers may increase hog production, leading to greater supply and lower future hog prices. A declining ratio indicates herd reductions, tightening supply and supporting prices.

Farmers and feedlot operators use the ratio for risk management. If margins tighten, they may hedge feed costs with corn futures or protect against falling hog prices with lean hog futures. When the ratio is favorable, producers may delay selling hogs to maximize profits, affecting short-term price movements. Speculators also track these trends, as production changes create trading opportunities.

Key Variables

Several factors influence the corn-hog ratio, affecting both feed costs and hog prices. Understanding these elements helps farmers, traders, and analysts anticipate profitability changes and adjust strategies.

Input Costs

Feed is the largest expense in hog production, typically making up 60-70% of total costs. While corn is the primary feed ingredient, soybean meal is also essential for protein. Rising energy prices impact farm operations, feed transportation, and climate control in facilities.

Government policies also affect feed costs. The Renewable Fuel Standard (RFS) increases demand for corn-based ethanol, potentially driving up corn prices. Trade policies, such as tariffs, also play a role. In 2018, Chinese tariffs on U.S. pork lowered domestic hog prices, squeezing producer margins.

Market Demand

Consumer preferences and global trade influence hog prices, which in turn affect the corn-hog ratio. Domestic pork demand fluctuates based on income levels, dietary trends, and seasonal consumption patterns. Pork sales often rise during summer grilling season and around holidays.

International trade is a major factor, with China, Mexico, and Japan as key buyers of U.S. pork. Disease outbreaks like African swine fever (ASF) can disrupt supply chains and drive price volatility. When ASF devastated China’s hog population in 2018-2019, U.S. pork exports surged, boosting hog prices and improving the ratio. Conversely, trade restrictions or economic downturns in importing countries can reduce demand, lowering hog prices and making the ratio less favorable.

Regional Production

Geographic differences in corn and hog production create regional variations in the corn-hog ratio. The Midwest, particularly Iowa, Illinois, and Minnesota, dominates both industries. Proximity to feed sources lowers transportation costs, giving producers in these states a cost advantage. In contrast, hog farms in areas with limited local corn production face higher feed expenses due to shipping costs.

Weather conditions also impact the ratio. Droughts or floods can reduce corn yields, raising prices and squeezing hog producers. The 2012 U.S. drought, for example, caused corn prices to spike, pushing the ratio below 15 and forcing many producers to cut herd sizes. Disease outbreaks, such as porcine epidemic diarrhea virus (PEDv), can also disrupt regional supply, affecting both hog prices and the ratio.

Role in Livestock Budgeting

The corn-hog ratio is a key tool in farm financial management. Since hog farming involves long production cycles—typically around six months from farrowing to finishing—farmers must forecast expenses and revenues accurately. The ratio helps guide feed procurement, herd size decisions, and break-even calculations.

Feed purchases are a major expense, so producers analyze historical trends to determine when to lock in feed contracts or adjust rations. If margins tighten, some farmers may supplement corn-based diets with alternative feedstuffs like dried distillers’ grains (DDGs) or wheat middlings to cut costs while maintaining growth rates.

Lenders also consider the ratio when evaluating loan applications for facility expansions, equipment upgrades, or herd acquisitions. A consistently favorable ratio supports loan approvals, while a declining trend may lead to stricter borrowing terms. Farmers must also plan for asset depreciation, including barns, feeding systems, and waste management infrastructure.

Seasonal Price Shifts

The corn-hog ratio fluctuates throughout the year due to seasonal trends. Understanding these patterns helps producers and traders anticipate profitability changes and adjust strategies.

Corn prices typically drop after the fall harvest when supply peaks, temporarily improving the ratio. As winter progresses and stored grain supplies tighten, feed costs may rise, pressuring hog producers.

Hog prices also follow seasonal trends. They often dip in the spring when market-ready hog supplies increase, then rebound in summer as grilling season boosts pork demand. These patterns create opportunities for producers to time feed purchases and marketing decisions to maximize profits.