CHICAGO (Reuters) – The strongest hog prices in two years should help producers post profits through the summer, said a University of Missouri economist.
“Producers have lost a lot of money in the last two years in the hog business, but right now it looks like 2010 will turn out to be slightly profitable, with some very good profits in the summer months,” Ron Plain, University of Missouri agricultural economist, said in a news release.
Plain noted that U.S. hog producers suffered from red ink in 2008 and 2009 and culled herds to survive. That herd reduction was evident in the latest USDA hog and pig report, which showed the smallest U.S. herd in three years and indicated there would be fewer hogs ahead.
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“The number of hogs coming to market in the first quarter was down three percent, but in recent weeks we’ve been close to the level of a year ago,” Plain said. “The USDA’s March hog and pig report was encouraging, with numbers coming in smaller than expected, with breeding herds down 3.9 percent and forecasted spring farrowings down four percent from a year ago.”
Canadian hog producers have lost money for a longer period because of exchange rate issues. They have also culled herds.
Plain noted that with corn prices in the mid-$3 US per bushel range, the lowest stable level in the last two years, the cost of production is about 52 cents per pound of live hog.
This week, hogs traded in the key Iowa/Minnesota markets at about 57 cents per lb.
Pork exports have helped the rebound in hog prices and are expected to keep prices supported. Exports are recovering from H1N1 concerns in 2009 that caused many countries to cut back on imports.
“We were down on exports last year for the first time in 19 years, but 2009 pork exports were still the second highest ever. We’re looking for U.S. pork exports to be up five to 10 percent from last year’s level,” Plain said.
USDA on April 9 estimated 2010 U.S. pork exports at 4.36 billion lb., up 5.7 percent from 2009’s nearly 4.13 billion.
“That (exports) is helped by the fact that Russia has increased the number of U.S. slaughter plants that are approved for shipments there, and China has lifted the ban on U.S. pork put in place last year during the swine flu scare,” he said.
Plain cautioned that as the higher pork prices reach the retail level consumer demand could slow, especially if unemployment remains high.
“Higher live animal prices are going to translate into higher prices of meat in the grocery store,” he said. “I’m concerned that consumers might slow down their meat consumption when that happens. If so, we may see some push back from the packers in buying hogs.
“Domestic meat demand should be fine if the economy grows a little bit faster and unemployment drops,” he added.
