"The first threat is that pork
exports will not be able to keep hog prices high after this spring,"
said Chris Hurt. "The second is that old crop soybeans may not yet
be sufficiently rationed. Finally, any concerns over harmful weather
this summer would result in still higher prices for corn and meal."
Hurt's comments came as he
reviewed recent action in the hog markets, which have been marked by
strong prices. In the first quarter of the year, pork production has
been up 2 percent, yet prices have been up by a remarkable 25
"The obvious conclusion is that
demand is substantially better this year," he said. "The most
logical explanation would rest with outstanding export shipments as
a result of the sharply restricted beef exports due to BSE and
reduced broiler exports since February due to bird flu."
Given the anticipation for
record large pork supplies this year, hog prices may be riding a
crest that cannot be maintained, Hurt cautioned.
"Production for this year is
now estimated at 20.3 billion pounds, an increase of about 1 percent
over last year's record. Slaughter supplies will be above
year-previous levels this spring and summer. Higher slaughter
supplies will be driven by the 3 percent larger supply of pigs that
weighed less than 120 pounds on March 1, according to the ‘Hogs and
Pigs’ report just released by USDA," he said.
The second factor driving
higher slaughter numbers is the growing number of pigs from Canada.
In the first 11 weeks of the year, through March 13, about 1.9
million hogs were imported from Canada, counting both young pigs and
slaughter animals. This is a 50 percent increase from imports during
the same weeks last year. Canadian imports now represent nearly 10
percent of U.S. slaughter.
"There remains some chance that
pork supplies will drop modestly late in 2004 and early 2005, as
U.S. producers indicate they intend to farrow 1 percent fewer sows
this spring and 2 percent fewer this summer," said Hurt. "However,
if Canadian supplies remain at current levels, these reductions may
not show up as reduced pork production."
The farrowing reductions will
be the largest in states that have cut the size of their breeding
herds. These include Missouri, down 8 percent; Indiana, down 6
percent; Nebraska, down 5 percent; and Iowa and Illinois, down 2
[to top of second
column in this article]
"Kansas has expanded the herd
over the past year by 6 percent, and Oklahoma has expanded by 3
percent," said Hurt. "For the entire country, the breeding herd is
down 2 percent. However, Canadian producers have about 3 percent
more sows and are demonstrating a strong desire to move many of
these pigs to the United States."
Price forecasts for the coming
12-month period are complicated by the uncertainty over trade
issues, including the opening of the Mexican and Canadian borders to
beef trade, as well as live animal movement, and by the question of
when broiler exports will be renewed.
"This uncertainty means that
price forecasts are made with reduced confidence," said Hurt.
"Second-quarter prices are expected to average in the $45 to $49
range for 51 to 52 percent lean carcasses on a live-weight basis.
The highest prices for the year could occur in the April or May time
period, while broiler and beef exports are still restricted.
"Summer quarter prices are
forecast in the $43 to $47 range, and fall quarter prices are
forecast in the $36 to $40 area. By the first quarter of 2005,
prices are expected to be in the $40 to $44 range. Hog prices are
expected to average $41 to $45 over the next 12 months."
Current futures prices for corn
and soybean meal suggest that costs will exceed anticipated hog
prices. Costs are estimated at near $47 per live hundredweight this
spring and summer and $44 this fall. Losses would average about $2
per live hundredweight over the next 12 months, with some positive
returns this spring and early summer and the largest losses of
nearly $6 per live hundredweight coming in the fall of 2004.
Lean hog futures prices on
March 29 averaged about $46.50 for the live equivalent price over
the coming 12 months, Hurt noted.
"This is about $3.50 higher
than the price forecasts made in this report and provides profitable
hedging opportunities that will cover all estimated costs of
production," he said. "Forward pricing or selling lean hog futures
as a hedge over the coming year should be strongly considered.
is possible that soybean meal and perhaps corn prices have not yet
reached their highs, and so price protection on those feed items
should also be considered."
of Illinois news release]