"After higher-than-expected prices in 2004 and 2005, prices so
far this year have been disappointing, given only small
increases in supply," said Chris Hurt. "While pork supplies will
only be up 2 percent in 2006, prices are expected to be down
about 13 percent."
A comparison of prices in the first quarter
this year with prices in the first quarter of 2005 will make the
point, Hurt added.
Live hog prices for 51 percent to 52 percent lean carcasses
were $52 per live hundredweight last year and $42 this year,
which is 19 percent lower. In a similar fashion, wholesale loin
prices were down 15 percent; bellies were down 10 percent; and
wholesale ham prices were down 16 percent.
"Meanwhile, pork production was up less than 2 percent," said
Hurt. "These are large price declines for such small increases
in supply. The 2 percent larger supply this year will result
from a 1 percent increase in the size of the breeding herd, and
the other 1 percent will come from increased numbers of pigs per
littler and heavier marketing weights."
The number of sows increased by 84,000 in the past year,
according to USDA's March Quarterly Hogs and Pigs report. The
largest increases were in Iowa, with 20,000; Indiana, 20,000;
and Missouri, 15,000.
"Given the favorable level of profitability in 2004 and 2005,
these were small increases," he said.
Since pork supplies do little to help explain much lower
prices compared to year-previous levels, analysts quickly look
to demand components for possible answers, he explained.
"While pork supply increases have been moderate, beef supply
increased by 5 percent in the first quarter of 2006 on 2 percent
greater slaughter volumes and 3 percent higher weights," he
said. "In addition, avian influenza in parts of Europe and Asia
have reduced demand for chicken and resulted in reduced exports
from the United States. Broiler exports were about 9 percent
lower in the first quarter than had been anticipated. As a
result, there has been nearly 5 percent more chicken in the
domestic market as well."
Retail pork prices have also been slow to drop as hog prices
moved lower. Retail prices were down about 5 cents per retail
pound for the first two months of this year. However, the farm
level value is down 17 cents per retail pound, while the
marketing margin is up 12 cents.
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"This means that producers are receiving about 27 percent of the
retail dollar so far this year, compared to 32 percent for the same
period last year," Hurt said. "Rather than say the farmers' share is
too low this year, it is more likely that the farmers' share was
unusually high the last two years: thus the higher-than-expected hog
Hog prices are expected to average
about $43.50 per live hundredweight in 2006, compared with $50 in
2005 and $52.50 in 2004. Second-quarter prices are expected to trade
in the $44 to $47 range, with the summer quarter averaging about $1
lower, at $43 to $46. Prices are expected to average $40 to $43 in
the final quarter of the year and then $38 to $42 in the winter.
"Given current anticipated corn and soybean meal prices over the
next 12 months, hog prices could drop to costs of production at
times this fall and winter, when costs are estimated to be about $40
per live hundredweight," said Hurt.
"Lean hog futures prices are not roughly equivalent to the prices
forecast here, so forward-pricing with futures does not appear to be
particularly attractive at this time. Historically, there has been a
strong tendency for futures prices to experience seasonal increases
in late April and the first half of May. If futures are able to add
a few dollars per hundredweight over the next month, hedging could
be considered, especially for those who need to be assured of
The potential for higher corn prices has become a somewhat
increased concern since the USDA's Prospective Plantings report
showed a large reduction in potential corn acres. However, since the
release of that report on March 31, new-crop corn prices have
rallied relative to soybeans, such that the incentive to plant corn
is now as strong as soybeans, according to Purdue University
"This likely means that not as many acres will shift to soybeans
as suggested in the report and that 2006-07 ending stocks of corn
may be estimated at around 1.5 billion bushels -- a bit more
comfortable level," he said. "In addition, recent rains have eased
Midwestern dry weather concerns, although some planting delays,
especially in the northern tier of the Midwest, may now be a
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]