"It may be time to fill every inch of space with corn, as the
last of the relatively cheap corn may be available this summer
and fall," said Chris Hurt. "With ending stocks of over 2
billion bushels, basis levels should be weak, and futures
premiums for next spring and summer are large. This means that
ownership of cash corn from now through harvest will likely pay
handsome dividends for hog producers."
Hurt's comments came as
he reviewed the USDA's latest Hogs and Pigs report. It showed
that producers continue to avoid expansion in the face of strong
profits over the past two years.
The breeding herd on June 1 was up 1 percent from the
inventory of a year ago. Indiana led with a 20,000-head
increase, and South Dakota producers added 15,000 head to the
breeding herd. States that increased by 10,000 head included
Colorado, Iowa, Missouri and Nebraska.
Farrowing intentions for this summer were unchanged from last
year, and fall farrowing intentions were up a modest 1 percent.
"The number of pigs per litter continues to set new records
and averaged 9.06 pigs for the first half of 2006," said Hurt.
"The number of market hogs was fractionally higher but generally
less than expected prior to the report.
"The number of pigs that will come to market primarily in
July and August was unchanged from last year, and the fall
supply should be about 1 percent higher than last fall."
Given the stability of inventory numbers, pork supplies are
expected to be up only 1 percent this summer and 2 percent in
the fall. For the first half of 2007, pork production is
expected to be up in a range of 1 percent to 3 percent. Hog
prices for the first half of 2006 averaged only $45, compared
with $52 in the first half of 2005.
"This represented a 13 percent drop, with pork supplies up
only 1 percent," said Hurt. "These very large changes in price
with only small changes in supply have been characteristic of
the market since the late 1990s.
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"Hog prices provided a surprising upward surge this spring as
prices moved from the high $30s in early April to the higher $50s by
mid-June, supported by smaller-than-expected slaughter counts."
Third-quarter prices are expected to average in the $46 to $48
range, he added. A transition from high prices in the high $50s in
early July to the mid-$40s by the end of September is expected. For
the fall and winter quarters, prices are expected to average about
$44. Some improvement is anticipated into the spring of 2007,
perhaps pushing prices to an average near $46.
"Hog prices prospects for the coming 12 months have 'perked up' a
bit, but anticipated costs are moving up also," Hurt said. "Given
current corn and meal prices, estimated costs will move from the
high $30s this past spring to about $43 to $44 by spring of 2007 as
a result of higher corn prices.
"The industry is expected to experience profit margins of about
$7 per live hundredweight this summer but only $1 to $3 per
hundredweight from the fall through the spring of 2007. The industry
has been profitable since the spring of 2004, so the current quarter
will be the 10th consecutive quarter of profits. This is the longest
run of profits since the mid-1980s."
Hurt noted that since there is little change in hog numbers, pork
supplies do not appear to be a major threat to profits at this time.
"The two most important threats are the potential for rising corn
prices and the potential loss of pork exports with reopening of the
Asian beef market," he said. "The larger of these two is clearly
corn price uncertainty.
"Current forecasts for above-normal temperatures and below-normal
precipitation for the mid-July pollination period are of concern. In
addition, rising corn utilization for ethanol means a
close-to-normal crop is needed to avoid some price rationing in
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]