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Pork industry
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[August 28, 2007]
URBANA -- The next 12 months appear to be near
break-even for pork producers, with continuing uncertainties in feed
prices and export markets, especially with regard to the potential
for more Chinese pork purchases, as disease pressure may reduce
Chinese production, said a Purdue University Extension marketing
specialist.
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 "Somewhat surprisingly, the pork industry has not made supply
adjustments in the face of higher feed prices," said Chris Hurt.
"In fact, pork producers have been modestly increasing the
breeding herd and seem content to continue to do so."There
seems to be two explanations. The first is that producers of
both beef and poultry were quicker to drop production with
rising feed prices to the extent that total meat and poultry
supplies have been lower this year. Second, hog producers were
operating at a profitable margin when higher corn prices hit.
Rather than trim the size of the herd, hog producers have
largely absorbed the higher feed prices in the form of reduced
margins."
So far this year, pork prices have been able to stay ahead of
the higher feed prices without forcing adjustments to supplies.
Production has been up 2 percent, yet farm-level prices have
also been up as a result of better domestic pork demand.
"The improved domestic demand probably is related to less
competition from other meat and poultry as those industries
adjusted to higher feed prices," said Hurt. "As corn prices rose
dramatically last fall and winter, the beef industry made some
sharp adjustments."
Those adjustments included sending many fewer animals to
feedlots and reducing market weights. As a result, the
availability of beef per person was down nearly 2 percent this
spring and summer.
"Adjustments to high corn prices also came quickly for the
broiler sector, where production per person was down about 3
percent from last fall through this summer," he noted. "Egg
producers also adjusted quickly, dropping available supplies by
about 2 percent from late 2006 until the present time."
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 Hurt said that while per capita pork production was up nearly 1
percent in the first half of 2007, the declines in beef and broilers
actually meant total meat and poultry supplies per capita were down
about 1 percent. This resulted in higher farm prices in the first
half of the year, with finished steer prices up 10 percent, hogs up
8 percent, broilers up 26 percent and eggs up 47 percent.
"Higher feed prices have resulted in margin compression for the
pork industry, but not losses," he added. "In the year prior to
higher corn prices -- fourth quarter of 2006 -- estimated margins
per hundredweight were about $7. In the year following the run-up in
feed prices, margins dropped to a positive $2 per live
hundredweight, with most of the compression resulting from higher
feed prices.
"The future outlook for the pork industry appears to be one of
near break-even prices overall. Per capita supplies of meat and
poultry are expected to begin rising again, with pork production to
expand by about 3 percent over the next year, with the resurgence of
broiler production, and with higher placements and weights in the
beef sector."
Total meat and poultry supplies are expected to begin rising
again in the fourth quarter and continue higher for 2008, he noted.
"As a result, 51 to 52 percent lean hogs on a live-weight basis
are expected to average about $46 to $49 this fall and winter," Hurt
said. "With current corn and meal prices, these prices are expected
to be near break-even to a slight loss. Price prospects for spring
and summer of 2008 improve several dollars to the very high $40s and
low $50s. But with somewhat higher anticipated feed costs, margins
will still only be about $2 per hundredweight. The prospects for
returns over the next year are about break-even to $2 in profits."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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