Pork producers have been forced by poor economics to reduce the herd so they can pay higher prices for feed. In addition, demand has recovered from the recession in late 2008 and 2009. USDA now expects pork exports to rise by 11 percent for the year. Actual pork exports for the limited data available for 2011 have been up 17 percent so far.

Japan, the No. 1 U.S. pork customer who purchased 30 percent of all U.S. exports in 2010, will likely need more U.S. pork due to disruptions from their unfolding nuclear disaster. Strong exports mean less of the U.S. production will be available for U.S. consumers and domestic per capita supplies of both pork and beef will be down this year.

Both hog and cattle prices have been on a missile headed upward. What can change this assent? Anticipated inflation probably has continued to play into the strong futures prices for lean hogs and live cattle as the U.S. Federal Reserve continues an easy monetary policy through June. However, there is increasing thought the FED may not continue with that policy after June and this raises increased concern for lean hog and live cattle futures to maintain current lofty levels.

Secondly, retail prices of both pork and beef may become the factor that limits the upside potential of futures as they may reach levels where consumers begin to reduce purchases. My current forecast is that retail beef prices may move to $4.90 a pound this year, up from $4.40 last year, an 11 percent surge.

Pork prices are expected to reach $3.40 a pound this year compared to $3.11 last year, a nine percent increase. Retail prices will move up sharply this summer and that is when some consumer push-back may be noted. Lean hog futures have some historic tendency to peak in early May and so this spring is a time for pork producers to consider larger hedging positions in lean hog futures.

Hog prices are expected to be at record highs this year, averaging in the very high $60s or very low $70s in the second and third quarters on a liveweight basis. Prices in the low $60s are expected for the fall and winter of 2012. Cost of production this spring will be record high as well, averaging nearly $65 per live hundredweight in the first three quarters.

If hog prices move into the lower $70s as expected this spring and summer, then pork producers will be able to pay above $7.50 a bushel for corn and still breakeven. Even $8 corn in the second and third quarters of 2011 might not put hog profits in jeopardy. However, these corn breakeven prices drop to an estimated $6 a bushel next fall and winter.

Upcoming corn prices remain one of the huge dilemmas for pork producers. Current corn markets show that cash bids are about 90 cents a bushel lower for the fall compared to today. Fall bids in the Midwest tend to be somewhat under $6 per bushel and suggest pork margins could be slightly positive next fall.

Everyone knows that harmful weather this growing season could send corn and meal prices much higher, and push hog producers back toward extremely large losses. For this reason, the pork breeding herd will not increase until a favorable crop is assured this fall.