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"After a year of profitability, the expectation was that some
expansion was under way," said Chris Hurt. "However, the USDA's
June hogs and pigs report showed the U.S. breeding herd is
expanding less than 1 percent, and producers indicated that
summer and fall farrowings will be unchanged from last year's
level. "Pork supplies will, however, be larger in the next 12
months as a result of a higher weaning rate and a modest
increase in weights."
Hurt added that supplies are expected to increase only about
1 percent, which means the amount of pork per person will be
nearly unchanged.
"Demand will be more important to prices than supply in the
coming year," he said. "Demand will be led by exports, which are
expected to remain strong. U.S. consumer demand may not be as
strong as in the past year."
The USDA report indicated that exports grew by 27 percent in
2004, and current USDA forecasts are for an increase of 17
percent in 2005.
Currently, about one out of every eight pounds of U.S. pork
production is consumed in a foreign country. Continued strong
pork exports will be supported by delays in opening the U.S.
beef export market after the June 24 announcement of the second
U.S. cow infected with mad cow disease.
"On the domestic front, pork demand is not expected to be as
robust as in the coming 12 months and is the primary reason for
lower hog price forecasts," Hurt said. "Pork and other meats
rode the crest of a high-protein diet wave in 2004. While those
diets are still popular, there is not as much media attention as
in 2004.
"More importantly, packer and retail margins were narrow in
2004, resulting in higher producer hog prices. This year,
marketing margins are likely to increase to more normal levels,
which will have a negative impact on prices received by
producers."
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Hurt said hog prices are expected to move from an average near $50
in July and early August to the mid-$40s in September. Further
erosion in prices is expected into the fall, when fourth-quarter
prices are expected to average somewhat under $45.
"This means that October and early November lows could reach the
low $40s," said Hurt. "Prices in the first quarter of 2006 are
forecast to average in the $44 to $48 range and improve to near $50
for the second quarter of 2006."
There is a question if producers can cover their costs over the
next 12 months, Hurt added.
"Hog prices are expected to average around $47 over this time
period," he said. "Current dry conditions, especially in the eastern
Corn Belt, have added anxiety to the feed cost outlook. Using
futures prices for corn and soybean meal on June 27 -- $2.40 per
bushel for December corn futures and $220 per ton soybean meal
futures -- estimated costs of production for the coming 12-month
period would be around $42.50 per hundredweight. Given the current
outlook, producers would expect favorable returns this summer and
next spring but have only modest profits in the fall and winter.
"The size of the 2005 crops will have a large impact on expected
costs of production."
Hurt said that returns over the past 12 months have helped
stabilize producers' financial conditions. Estimated returns have
been $13.50 per hundredweight, or about $36 per head.
"This turn to strong returns was welcomed after the industry
operated at a loss in 2002 and 2003," he said. "With little
expansion in the United States, pork producers can look forward to
modest profits over the next 12 months. They also realize the
vulnerability of those profits as they watch the weather forecasts
and hope for more rain in the eastern Corn Belt."
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences]
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