Consumer demand continues to help pork market
Consumers continue to be the highlight for hog producers and keeping the market up as much as possible, according to University of Missouri Extension agriculture economist Glenn Grimes.
"The available data continues to support strong consumer demand for pork. For January-November, consumer demand for pork was up 3.1 percent," he said.
Grimes was a participant in the Pork Checkoff-sponsored teleconference on the USDA's Quarterly Hogs and Pigs Report on Dec. 30. The fourth quarter report came in relatively close to trade expectations. The total herd numbers were at 65.8 million head, down 1.8 percent from the previous year's marks. This number was the biggest difference in the pre-report estimate, which was for the total herd to be down 2.4 percent. The breeding herd was down 3.5 percent and market herd was down 2.0 percent.
Iowa State University Extension livestock marketing specialist John Lawrence said the market hog inventory is the smallest since 2006. "However, in 2006, corn was $2 per bushel as compared to corn prices well over $3 per bushel in 2009. Higher feed costs are leading to these smaller inventories," he said.
The decline in inventory was not as much as expected, which will not help boost prices looking forward into 2010. "There are a few more pigs out there than we thought, and we are definitely not seeing the liquidation in the fourth quarter that we had previously seen," said Lawrence.
Lawrence's prediction for 2010 prices, using the Iowa-Southern Minnesota carcass prices, were a bit higher than Grimes' numbers. Lawrence predicted $62 to $66 per hundredweight (cwt.) for the first quarter, $70 to $74 per cwt. for the second quarter, $69 to $73 per cwt. for the third quarter, and $64 to $68 per cwt. for the fourth quarter 2010.
Grimes said that even though there was little change in the USDA's figures for the breeding herd, the litter size was up more than expected--9.7 pigs per litter as compared to 9.5 pigs per litter a year ago. With this increase in production, Grimes was a bit lower in his price forecast for 2010. Grimes predicted $58 to $62 per cwt. for the first quarter, the mid- to upper $60s per cwt. for the second quarter, the upper $60s to $70 per cwt. for the third quarter, and the upper $50s to $60 for the fourth quarter.
Pork demand domestically has been relatively strong through the first three quarters of 2009, but showed some weakness in the fourth quarter as prices and supplies both declined, relative to 2008 levels, according to Lawrence.
"The strengthening U.S. economy and still small poultry supplies should be helpful for hog prices. More importantly, the weaker U.S. dollar and improving global economy should support export demand in 2010. The removal of restrictions on U.S. pork by China late in 2009 provides the potential for more exports to that country," he said.
Unpredictable input costs
Dale Durcholz, senior analyst at AgriVisor Services in Bloomington, Ill., said the most risk for hog producers continues to be on the cost side.
"Soybeans are moving at a pace as fast or faster than they have in the past 20 years. This could lead to a problem with a shortage of soybeans for feed," he said. "With the increased export market and an increase in prices, it can really cut into any profit a hog producer might see."
Durcholz said the soybean availability is depending largely on the size of the South American soybean crop. While their growing conditions look good so far, he warns of depending too much on a crop that might not be readily available for U.S. pork producers.
Lawrence said the cost of production for the year forward looks to be about $51 to $52 on a live basis. He expects a profit to be seen in late March through August, and hog producers to be operating in the red for the fall months.
Grimes suggested pork producers continue to watch futures markets, as last year at this time producers could have locked in a profit at $8 to $9 per hog.
"With the structure of the hog industry now, we can no longer follow the typical price cycles as we have in the past," said Grimes. "If we don't decrease the herd even more right now, we could have price and profit problems similar to what we saw in 2008."
Jennifer Bremer can be reached by phone at 515-833-2120, or by e-mail at firstname.lastname@example.org.