"Pork production is up more than 4
percent in 2004, yet hog prices are up 28 percent. At an average of
$47.50 so far for the year, the average price is more than $10 per
live hundredweight above the average for the January through May
period of 2003," said Purdue University Extension economist Chris
Hurt says there are three reasons why
hog prices have held up.
"First, pork exports have been
remarkable. In the first quarter of the year, pork exports rose by
27 percent as some world buyers heavily substituted pork for
restricted beef and broiler imports. Mexico increased pork purchases
by 88 percent in the first quarter as beef purchases from the U.S.
dropped by 86 percent. Canadian purchases of pork increased by 31
percent as beef purchases dropped by 95 percent. The Japanese, on
the other hand, purchased only 7 percent more pork. Pork export
prospects continue to be strong, as restrictions on beef exports are
now expected to remain in place for much of the year," said Hurt.
The second factor driving much higher
hog prices is the robust U.S. economy and diet trends.
"Disposable personal income rose by 6
percent in the first quarter of the year. Real GDP growth was a
healthy 4.4 percent. Strong consumer demand, driven by purchasing
power and high-protein diets, has resulted in wholesale pork prices
being sharply higher in the first five months of the year. Pork
belly prices were up 18 percent higher, loin prices were up 22
percent higher, and ham prices were 28 percent higher than in the
same period in 2003. Forecasts for the U.S. economy remain
optimistic, with a 4.5 percent expected real growth in GDP this year
and around 4 percent for 2005," said Hurt.
Third, producers have been getting a
larger share of retail pork expenditures.
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"So far this year, producers have
received 29 percent of the retail dollar spent on pork, compared to
only 24 percent last year during the same period. Marketing margins
have narrowed for both packers and retailers," explained Hurt.
He expects these positive factors to
remain in place for the remainder of the year.
"World and U.S. economic growth appears
to remain favorable, and producers' share of the retail pork dollar
should remain strong," he said.
The only negative is on the supply
"Pork production will be at a record
20.6 billion pounds, a 3 percent increase from production of a year
ago. However, extraordinary demand has won the battle so far, and
pork supplies should begin to moderate in September and move lower
than year-earlier levels in the winter," said Hurt.
Hurt expects prices for 51-52 percent
lean carcasses on a live-weight basis to average in the very high
$40s this summer before moving to the low $40s this fall. Winter
prices are expected to be in the mid-$40s. Lean hog futures prices
are well ahead of these forecasts for this summer and appear to
offer excellent hedging opportunities.
"Everyone knows that feed prices will
be volatile for the next couple of months. After a tremendous start
to the planting season, the remainder of the soybean crop will be
late-seeded, and excess moisture may have reduced the yield
advantages of the early start for corn," said Hurt.
He says that
at current futures prices, hog producers could lock in profits for
lean hogs, corn and soybean meal. He expects prices to drop to
closer to break-even prices for the fall and winter.
of Illinois news release]