What is in this article?:
- Feed costs dampen high hog prices
- Industry has been downsizing
• Live hog prices in 2011 are expected to exceed $60 per live hundredweight, or more than $80 on a lean basis.
• Record high hog prices would seem to suggest great profit prospects for pork producers in 2011. Of course that’s not the case as feed costs aim toward a break-even year with costs estimated to be slightly over $60 as well.
Industry has been downsizing
Hurt said that the pork industry has been downsizing in response to high feed prices and will drop modestly in 2011. In December of 2007, the U.S. breeding herd stood at 6.233 million head. Today the herd is at 5.778 million head or a 7 percent reduction.
“Pork consumers will finally be feeling the pain of high feed prices in the record retail prices they will face in 2011,” Hurt said.
The USDA December Hogs and Pigs report indicated that producers reduced the size of the breeding herd last year by 72,000 head, or about 1percent. The 2010 reduction was focused in North Carolina which had a reduction of 90,000 head. Farrowing intentions were down 1 percent for this winter and down two percent for this coming spring. This means some additional herd liquidation will be likely this winter, Hurt said.
Hurt suggests that the Federal Reserve policy of quantitative easing (QE2) also be considered as a stimulator of commodity prices. “Since the Fed announced their policy in late August 2010, commodity prices have moved up, but meats have lagged in those increases,” he said.
As an example, Hurt said the April 2011 CRB commodity index futures have risen about 26 percent while the April 2011 live cattle futures have only increased 10 percent and the May 2011 lean hogs have risen 14 percent. In contrast May 2011 corn futures are up 37 percent and May 2011 soybean meal has been up 27 percent.
“While each commodity has its own supply-and-demand situation, this may be an indicator that the full bullish impact of QE2 is yet to come to the meat complex,” he said.
Corn prices and yield will also play a role. “The U.S. average price of corn in 2011 may be $5.75 per bushel, compared to $4.78 for calendar year 2008. High-protein soybean meal is estimated at $363 compared to $331 in 2008. The total estimated costs for 2011 are $60.50 per live hundredweight compared with $54 in 2008,” Hurt said.
He added that farrow-to-finish operations had profits of about $12 per head in 2010. However, this came after estimated losses of $17 and $24 per head in 2008 and 2009. In addition, the industry is currently operating at losses estimated at $22 per head in the final quarter of 2010 and an estimated $11 of loss in the first quarter of 2011.
“Better corn yields in 2011 would help moderate feed costs, but those better yields are still far off with a lot of weather to worry about in both the Southern and Northern Hemispheres over the next nine months,” Hurt said. “The most optimistic prospects for hog producers are that they continue to trim the breeding herd in the first half of 2011 and have high corn yields next summer. This would provide robust profits for 2012. If yields are not high in 2011, then losses could return for 2012.”