What is in this article?:
- Profitable year expected for pork industry
- Loss years will be offset
• Profits in 2012 are currently forecast to be near $17 per head, which would be the highest since 2006.
• Although a return to profitability is welcome news, there are deeper and more important implications.
Loss years will be offset
The large loss years of 2008 and 2009 ($17 and $24 per head) will finally be offset by the profitable years of 2010, 2011, and 2012 ($14, $10, and $17 per head). Hog producers would say this in a different way: It has taken three years just to get back the money lost in in the two bad years when feed prices surged.
"Another way to look at this is to say that the pork industry has adjusted to $7-a-bushel corn such that they can break even if cash corn prices stay at that level and make money if prices are below $7. The current prospect for cash corn prices to be in the lower $6.00 area is a primary reason for the profit opportunity in 2012," he said.
Are feed prices now moving into their post-peak period? No one can know the answer with much confidence, but the declining prices of corn and soybean meal since August will have many debating that issue. There clearly are fundamental reasons to believe that could be the case, as we have just itemized.
The post-peak price feed period would be expected to be one of both lower feed prices and less volatile prices. These are conditions that would favor expansion of animal production, including the pork industry.
"Of course, pork producers do not quickly forget $7 and $8 corn prices and should be cautious in quickly expanding herds. Perhaps the best and most logical advice is for them to use the expected profitability in coming months to enhance their financial positions and to wait and see how the 2012 U.S. crops evolve before moving toward expansion in late 2012," Hurt said.
An ominous threat remains: the Southern Plains drought that has recently crept into the western Corn Belt, although NOAA sees improving moisture conditions for the western Corn Belt this winter.
"Hog prices are expected to trade in the mid-$60s this winter and improve to the very low $70s in the second quarter on a live weight basis. Prices are expected to moderate a few dollars in the third quarter and then fall to the mid- to higher $50s for the final quarter of 2012. By the end of 2012, signs of pork expansion may begin to lower prices, and those lower prices would be expected to extend into 2013," he noted.
Although the financial outlook for pork producers has continued to improve this fall, the general economy remains a "shadow of doubt" for the pork market that cannot be overlooked.
The European debt issues have been delayed but not yet dealt with. Much like Europe, the U.S. government seems unable to agree on a plan for dealing with the current unemployment problem and long-term debt concerns.
"If these worries should lead to slower, or negative, economic growth rates, weak consumer incomes could lead to lower pork prices and a less favorable pork outlook. Clearly, this is another reason for pork producers to be hesitant in expanding production at this time," he said.