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"The pork industry's concerns about higher corn prices from the
extraordinary growth in corn demand for ethanol appears to be
moving from speculation to reality," said Chris Hurt. "Higher
corn prices are expected to have at least two impacts in the
coming year. "First, market weights will likely drop, which is
a positive for hog prices. However, this will be more than
offset by the negative consequences of higher corn prices on
costs."
Hurt's comments came as he reviewed the prospects of $3 corn
and the impact on the pork production industry.
In addition to escalating costs due to higher corn prices,
producers are also faced with some expansion in the nation's
herd, with the USDA reporting the market herd up over 1 percent
and the breeding herd up nearly 2 percent on Sept. 1. This means
that pork production will rise by about 2 percent over the next
12 months. However, domestic pork supplies per person will be
only modestly higher, given growth in the U.S. population and
continued growth in pork exports.
The nation's breeding herd expanded by nearly 2 percent, or
107,000 animals, over the past year.
"Somewhat surprisingly, 65,000 of those animals are in the
eastern Corn Belt states, with Indiana's breeding herd up 30,000
head, Illinois up 20,000, Ohio up 10,000 and Wisconsin up
5,000," said Hurt. "The other area of expansion was in the
Plains states of South Dakota, 15,000; Colorado, 10,000; and
Kansas, 10,000.
"In the western Corn Belt, the expansion of 15,000 in
Missouri was offset by a decline in Minnesota of 5,000, with
Iowa unchanged."
The inventory of market hogs that will come to market this
fall and winter is up about 1 percent. The supply of market
animals for next spring and summer will come from farrowings
this fall, up 1 percent, and winter, up 2 percent.
Market weights are expected to begin to drop below
year-previous levels for this fall and continue lower through
next year due to much higher corn prices. Current estimates are
for carcass weights to be down by 1.3 pounds, or 0.6 percent.
Pork supplies are expected to be about 1 percent higher this
fall and then nearly unchanged in the winter.
The modest expansion in farrowings and increasing number of
pigs per litter should move pork supplies nearly 3 percent
higher for the spring and summer of 2007.
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"Pork trade continues to be a positive demand factor," said Hurt.
"For 2006, pork exports are expected to reach 3 billion pounds, or
about 14 percent of domestic production. The current forecast from
USDA is for exports to expand an additional 4 percent next year.
"This is a sharp slowdown from the 2003-to-2006 period, when exports
expanded by a compound annual rate of 21 percent. The major question
will be if Asian pork purchases will hold up with U.S. beef once
again flowing."
Hog prices averaged $52.40 per live hundredweight this summer, he
added.
"However, prices are expected to dip to the $45-to-$48 range for
quarterly averages this fall and winter," Hurt said. "Prices for
next spring and summer are expected to recover once again and
average in a range from $48 to $52."
Over the past 12 months U.S. corn prices averaged $2.03 per
bushel. Futures markets are suggesting an average U.S. cash price of
about $2.55 for the coming 12 months, with prices expanding by next
summer.
"This means estimated hog production costs will rise from the
very high $30s this fall to about $43 by next summer," said Hurt.
"The best news is that hog prices are still expected to be above
these costs next summer and allow $6 to $7 per hundredweight of
profit.
"If hogs are about $50 next summer, then corn prices would have
to be near $4.25 per bushel to eliminate all profits with other
costs holding near today's levels. But these will be the highest hog
prices of the year, with averages closer to $47."
Hurt said there is a clear message for the pork industry.
"Be cautious on further expansion until more is understood about
where corn prices are headed and just how the pork industry can
utilize distillers grains," he said. "The outlook today says the
pork industry can pay $3 for corn, but more hogs and less corn is
heading in a dangerous direction."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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