US consumers have been shaken and the pork industry has never been so
dependent on incomes of the world's consumers as pork exports have lead prices
higher. Christ Hurt, Extension Economist of Purdue University asks, what
are prospects for the industry in the coming year?
Anticipation of smaller supplies should be supportive to hog prices.
The just released USDA Hogs and Pigs report does suggest that US producers are
following through on their intentions to reduce the breeding herd and cut
production for 2009. The nation's breeding herd is down 3 percent and
producers indicate they will cut farrowings by 5 percent this fall and another 3
percent in the winter. However, record weaning rates mean that supplies
will not be down by the same percentage.
Record high weaning rates are
nothing new to the US pork industry. The number of pigs per litter will be
nearly 2 percent higher in 2008 as extremely high feed prices have forced the
industry to trim low-productive sows and encouraged management practices to save
more pigs. The rate at which pigs per litter grows is highly affected by
feed costs. The last time the growth rate in pigs per litter was at 2
percent a year was in 1996 and 1997 when corn prices moved above $5.00 per
US pork production is expected to remain up about 3
percent in the fourth quarter before dropping one to 2 percent in 2009.
Pork trade has been the outstanding feature of 2008. So far this year,
pork exports have been up 71 percent and imports down 16 percent. Net
trade (exports minus imports) has accounted for 18 percent of US
production. Domestic production up
compares with 10 percent last year. This means an additional 8 percent of
US production is not available to US consumers because of trade. Given
that domestic production is up about 7 percent this year, trade is the only
reason hog prices were able to recover so sharply this spring and summer.
Several cracks in the bullish trade numbers have developed, however.
China was by far the leader of added exports, representing 46 percent of the
additional exports through July. The rate of exports to China dropped in
July, giving rise to concerns they may reduce purchases in the post-Olympic
period. Russia has also been an important buyer of pork this year,
accounting for 13 percent of the growth in US exports in the first seven months.
Continued exports to Russia are in
jeopardy as Russia retaliates for US diplomatic criticism of Russia's incursions
into Georgia. Russia has sought to ban some imports from the US on health and
sanitation reasons and is attempting to stimulate their own domestic production
through government supports of their industry. Most importantly, Russian
pork purchases represented only 2 percent of US production so far this year, so
a total loss of that business is not terribly bearish to prices.
prices, as measured by live prices for 51 to 52 percent hog carcasses, are
expected to average in the high $40s to very low $50s for the fourth quarter of
2008. Prices are expected to be in the low $50s this winter and move into
the high $50s to very low $60s in the spring and summer. For the calendar
year of 2009, hog prices are expected to average in the mid-to-upper
Current estimates of costs for 2009 are in the mid-$50s, resulting
in an estimate for modest profits for the year. Feed prices are highly
unstable at this writing so much uncertainty is added for pork producers from
the feed cost side as well. Given the current forecasts of hog prices and
costs, producers could pay about $5.25 for corn in 2009 and still
breakeven. Corn prices
This compares with a
corn breakeven purchase price of only $3.75 per bushel for 2008. Since
corn prices will average closer to $5.00 a bushel, this means considerable
losses in 2008, on average.
What of the current financial difficulties
for the US economy? Will consumers back away from meat consumption given the
uncertainty in their incomes and reduced value of their stock portfolios?
Beef consumption will feel the impacts much more strongly than pork since pork
is much lower priced. For 2008, retail beef prices have averaged $4.26 per
pound and retail pork has averaged $2.90 per pound. In recent years, the
level of consumer incomes has had little impact on pork consumption.
However, pork prices can be expected to experience some negative reactions to
consumer income uncertainty.
Both crop and animal agriculture are ready
for more stability, but a movement toward more stability cannot yet be seen from
today's vantage point.Source; Chris Hurt, Purdue
Related WebsitePurdue university Click here for
the free Pig Progress newsletter