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"This is great news
for many producers needing to improve their relationship with their
lenders after about 14 months of operating losses," said Chris Hurt.
Hurt's comments came
as he reviewed recent developments in the pork market. He said the
improvement will result from lower feed costs and higher hog prices
coming from reductions in pork production as a result of breeding
herd cutbacks.
"Costs are expected
to drop about $2 per live hundredweight by this fall due to lower
corn and soybean meal prices," he said. "Pork supplies are expected
to be down an estimated 2 to 3 percent for the remainder of this
year.
"The breeding herd
continues to decline as producers respond to discouraging prices and
lack of profits over the past 14 months. The breeding herd on June 1
was estimated by the USDA to be down 5.9 million animals, a
reduction of over 4 percent from the same date last year. This is
the fourth quarterly report indicating that the breeding herd is
declining. Further declines are expected through all of 2003, so
that pork supplies will continue to decline through much of 2004."
Most Midwestern
states have reduced the size of the breeding herds. The decline was
led by Missouri, with 11 percent fewer animals in the breeding herd,
but closely followed by Iowa and Ohio with an 8 percent reduction.
Illinois' herd was down 7 percent, Indiana down 6 percent, and
Nebraska was down 5 percent. These six states accounted for a
reduction of 225,000 animals in the breeding herd, with the national
total down 269,000.
The breeding herd
increased by 9 percent in Oklahoma, 5 percent in Texas, 4 percent in
South Dakota and 2 percent in Minnesota. Nationally, producers
indicated they will farrow 2 percent fewer sows this summer and 1
percent fewer this fall.
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"Pork supplies should
continue to moderate throughout 2003 and into 2004," said Hurt.
"Pork production is expected to be down 2 percent in the summer and
nearly 3 percent in the fall. Pork production during the first half
of 2004 is expected to be down 1 to 2 percent.
"Hog prices are also
likely to be supported by an improving U.S. and world economy over
the coming year and by the decline of the U.S. dollar relative to
the Canadian dollar."
Prices for 51 to 52
percent lean animals on a live-weight basis are expected to average
in the low- to mid-$40s this summer before dropping to the higher
$30s for a fall quarter average.
Hurt added that
prices are anticipated to average near $40 for the winter and in the
low- to mid-$40s for the spring of 2004.
"While a period of
large profits cannot be forecast from the current level of herd
liquidation, observations from past hog cycles suggest that the
ultimate reduction in the herd may be larger and that prices and
profits will be greater than is now in view," he said. "In cycles
observed since 1980, profits reached at least $10 per live
hundredweight in the most profitable quarters. The current 'best
estimate' of the high price period would be the spring and summer of
2004.
"To achieve $10 or greater
per-live-hundredweight margins would require hog prices in the
higher $40s and above. While June 2004 futures are currently
reflecting live prices several dollars lower than this, hog
producers will likely see profitable hedging opportunities over the
next 14 months. Those farrow-to-finish operations considering exit
from the industry should focus on completing farrowings in the
summer of 2004 and selling the last of the market hogs by the end of
2004."
[University
of Illinois news release]
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