 "All you have to say to a pork producer is '1998' and the most
jovial fellow will turn red with rage, or drop his shoulders in
a feeling of helplessness. Unfortunately, those emotions may be
relived as 2008 may replace 1998 as the worst financial year for
pork producers in modern history," said Chris Hurt."The
number one culprit is high feed costs, and the second is too
many hogs. The current unrelenting climb of corn and soybean
meal prices may drive 2008 costs to the highest annual level
ever. In addition, there continues to be more slaughter hogs
than accounted for in USDA inventory reports, with no signs of
moderation."
Hurt addressed the problem of "unexplained hogs." Forecast
slaughter at the beginning of the fourth quarter of 2007 was
about 4.5 percent higher. Actual slaughter was up almost 9
percent. Where did the extra hogs come from?
"USDA increased last spring's farrowings somewhat, but there
were still nearly 3 percent unexplained slaughter hogs," said
Hurt. "The great worry is that there may still be more hogs than
USDA has counted in the December update.
"The December USDA inventory count indicated that slaughter
would rise by about 4 percent for the first five months of the
year. If USDA has undercounted, slaughter could be 6 to 7
percent higher. USDA indicated that the breeding herd was up by
just 1 percent and that winter farrowings would rise by 2
percent and spring farrowings by 1 percent."
Pork supplies are expected to expand by 3-5 percent in each
of the first three quarters of the year. By the final quarter,
production may be about the same as in the final quarter of
2007, but that was too much pork, Hurt noted.
"Annual production in 2008 will rise by about 3 percent --
too much to sell at profitable prices," he said.
Live hog prices for 2008 are forecast at $46.30, down from
$47.10 in 2007. These are based on live-weight prices for 51-52
percent lean carcasses. Prices are expected to average in the
very low $40s in the first quarter of the year, rise to the high
$40s for the second and third quarters, and finish the last
quarter with mid-$40s averages.
"Average prices for 2008 are expected to be the lowest in
five years," he noted.
Corn and soybean meal futures prices indicate a record-high
price year. This will mean record-high annual costs for pork
producers. Both corn and soybean meal have had higher prices
than current levels, but those were spikes that soon moderated.
"While live hog prices are expected to average $46.30 for the
year, costs of production are estimated at $55.60, based on
futures prices for corn and soybean meal on Jan. 4, 2008, and
adjusted to cash purchase levels," he explained. "These
estimates suggest a loss of about $9.30 per hundredweight, or
nearly $25 per head on average for the year.
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"This would exceed the previous worst year in modern history, 1998,
with an estimated loss of $6.78 per live hundredweight."
Costs prospects for 2008 at $55.60 are extraordinary, he added.
"Estimated costs average for the previous 10 years was $40.64 per
live hundredweight," he said. "The previous record annual estimated
high costs were $48.93 in 1996.
"The largest losses are expected in the first quarter of the
year, when they could reach $36 per head, and then be around $20 per
head for the rest of the year."
How do hog producers get out of this one? Nothing is going to
come easy, Hurt predicted.
"Producers may want to base their strategies on a 'survival mode'
for 2008," he said. "If they can get through 2008, hog prices will
likely recover in the spring or summer of 2009.
"The industry needs to work quickly on demand stimulation. Retail
pork prices have continued to move upward. Retailers need to be
encouraged to lower pork prices by being reassured that wholesale
pork prices will remain low in coming months. Foreign buyers need to
be encouraged to increase purchases at this time of low-priced
wholesale cuts. A special effort needs to move forward with China to
resolve issues that may be constraining their purchases."
On the supply side, producers can, and will, cut weights to
optimum levels. A re-examination of feed efficiency, starting with
feeder adjustment, should be undertaken. Low-feed animals should be
rapidly culled. Finally, the breeding herd must be cut, maybe in the
range of 3-5 percent. That process is likely beginning now and will
continue through the first half of the year.
"They say it is always darkest before the dawn, but the dawn will
not be in sight until pork producers reduce production to better
align with this new high-cost era," Hurt said.
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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