|
Chris Hurt made the comments as he
reviewed the effects of low grain prices on the livestock industry.
"Last spring, high grain prices were
telling end-users they needed to 'hit the brakes' on usage," said
Hurt. "Now low grain prices are telling end-users to 'stomp on the
accelerator.' What is the reaction time to move from ‘slow down’ to
‘speed up’? The answer, of course, depends on the sector."
Live cattle weights have moved up from
about 1,230 pounds per head in March to 1,265 pounds in the past few
weeks. Today, cattle are being marketed 4 percent heavier than a
year ago. The broiler industry can also respond quickly and is
expected to increase production by 3 percent to 4 percent in 2005.
"Traditionally, cheap corn has meant an
expansion of the breeding herd in the fall, after harvest is
complete," said Hurt. "That is likely this year as well, but not
just due to the dramatic drop in corn and soybean meal prices, but
also to the extraordinary demand for pork that is stimulating high
hog prices as well."
In the just-released September hogs and
pigs report, the USDA indicated that producers are already
expanding. The breeding herd has increased by 1 percent, and
farrowing intentions for this fall and winter are up 1 percent as
well.
"In past years, the herd expansion was
often led by the major corn-producing states," Hurt noted. "However,
with changes in location of production and with an industrialized
production sector, that is less true this time.
"While Iowa producers reported a 3
percent expansion of their breeding herds, North Carolina is up 5
percent, Colorado is up 8 percent, and Texas is up 16 percent.
Illinois, with very good corn and soybean crops, has had a 2 percent
reduction in their breeding herd. Minnesota, with below-average
crops, also reports a 2 percent reduction."
Other Midwestern states with
reductions, Hurt added, are Nebraska, down 4 percent, and Wisconsin,
down 17 percent. Indiana's breeding herd was reported as unchanged.
Pork supplies will be somewhat higher
in 2005 than previously expected. That is not as important as the
strength of demand, he said.
"Price forecasts are highly dependent
on whether demand will hold into 2005," said Hurt. "As an example of
the impact of demand, pork supplies in September have been about 6
percent higher compared to September 2003, but lean carcass prices
are one-third higher, and live prices are nearly $15 per
hundredweight higher."
[to top of second column in
this article]
|
What is driving the demand? Hurt said
pork exports are up about 26 percent for the year, while pork
imports are down nearly 8 percent. This is partially related to the
near-elimination of beef exports, due to concerns about mad cow
disease in the United States.
"Secondly, consumers have turned to
high-protein diets in record numbers this year, which has enhanced
demand," he said. "Finally, it appears that retailers have heavily
featured pork as a lower-priced alternative to record-high beef
prices, which are expected to average near $4.10 per retail pound
this year compared to pork's $2.75."
Pork producers have shown an initial
response to the reversal in grain prices, but there is more to come.
While feedlot managers are already adding much more weight to
cattle, hog weights have not yet responded. The reason is that hog
prices are very high and pork producers don't believe these prices
can last.
"They are selling hogs as soon as they
are market-ready," said Hurt. "The extreme immediate need for hogs
to be sold sooner rather than later is reflected in the sharply
inverted lean hog futures market. Hog weights will increase markedly
when the demand forces that are creating these inverses go away.
"Secondly, more expansion should be
expected because feed prices are going to be lower than was
anticipated around Sept. 1 when the USDA surveyed pork producers.
Third, profits this fall will be huge as costs fall into the $36 to
$38 per live hundredweight range. Some of these retained earnings
will go back into additional expansion."
Hurt said the hog price outlook is
difficult to call. Pork supplies will be nearly unchanged this fall
before rising by 3 percent in the winter and spring. Supplies could
be up by 4 percent by next summer and finish 2005 with a robust 5 to
8 percent increase in the final quarter. Expectations are for prices
to average in the very high $40s this fall, near $50 in the winter
and in the low $50s next spring and summer.
"The growing
breeding herd expansion this winter should begin the downward spiral
of hog prices in late summer of 2005," he said. "Price weakness may
extend from the fall of 2005 through 2006."
[University
of Illinois news release]
|
