Richard Andersen of Informa Economics in Memphis is giving an outlook that isn’t particularly happy or bullish for hog prices.
High corn prices are threatening margins and making high consumption necessary, something that relies on pork product sellers not increasing retail prices too much to financially-strapped consumers. Anderson sounds skeptical that combination will work out for long.
“Our feeling is that it is going to be a problem,” said Andersen.
Here’s Informa’s price analysis:
Andersen said it is easier for him to make a prediction for $9 per bushel new crop corn prices than $5 prices, so pressure isn’t likely to lift from the input side.
U.S. exports are vitally important for getting rid of North America’s production, but with rising pork prices, the emerging markets that are buying the pork are likely to start backing away from new purchases.
Domestically, forward futures months seem far too high when compared to likely demand, Andersen said. Informa’s fundamental analysis suggests late 2011 prices should be considerably lower than late 2011 futures are right now.
“We’ve got a disconnect,” said Andersen.
In the slide above, the red line is what Informa considers reasonable hog prices. The yellow line is futures prices. In June, for example, lean futures prices are over $100, but Informa’s expectation is about $90. There’s a huge gap, and something’s gotta give.
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Andersen just said he’s been urging all his clients to lock in hog and feed costs, because he’s bullish corn prices and meal prices and bearish hog prices.
