 "However, many uncertainties continue for the pork industry."
Recently, Hurt noted, hog prices collapsed along with all other
farm commodities. From a high of $62.56 average in August, live
hog prices are expected to average about $39 for November. The
last time prices dropped this much from their summer highs was
in 1998, when prices dropped by more than $25 per live
hundredweight.
"Surprisingly, most of the decline is attributable to demand
factors," he said. "Pork exports were flying high this past
spring and summer as a result of a weak U.S. dollar and
aggressive buying by China prior to hosting the August Olympics.
"In the period from April through July, exports represented
24 percent of U.S. production, compared to 13 percent for the
same period in 2007."
Since last summer, several events have reduced pork trade.
"After the Olympics, China greatly reduced their purchases
from the United States," he said. "In the first half of 2008,
China accounted for 50 percent of the growth in U.S. pork
exports. Their peak activity came in the second quarter, when
Chinese purchases reached about 7 percent of all U.S.
production.
"Chinese purchases then collapsed in the third quarter,
dropping by more than 60 percent, to about 2.5 percent of U.S.
production."
Another factor is the exchange rate of the U.S. dollar, which
has increased about 20 percent since July lows, making pork more
expensive for foreign buyers. This has resulted in USDA's export
projections being lowered by 7 percent for 2008 and by a more
robust 12 percent for all of 2009.
"The financial crisis has had severe impacts on hog prices as
well," said Hurt. "Since Sept. 26, when the crisis began to
unfold, December lean hog futures have fallen by about $9 per
carcass hundredweight, or about 14 percent. The impact on meat
consumption is related to concerns about the depth of the
recession.
"Generally, the negative impacts are greater for beef than
for pork. Pork is generally a lower-cost retail product relative
to beef and is somewhat favored when consumers become more
value-conscious. Retail pork prices so far this year have
averaged $2.92 per pound, compared to $4.31 for retail beef."
What does all this mean for hog prices and producer incomes
in the coming year?
[to top of second column]
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"Pork production is expected to drop by 2 to 3 percent in 2009,"
said Hurt. "This may help hog prices average a few dollars per
hundredweight higher than the $48 live price in 2008.
"Somewhat higher hog prices will be welcomed by producers, but
even more important may be lower feed prices."
Hurt noted that estimated costs of production in 2008 were near
$53, but current localized futures prices suggest costs could drop
into the $46-to-$48 range for 2009. Current forecasts are for cash
corn to average about $3.50 in the coming year, compared to about
$4.60 a bushel this year. Soybean meal is currently about $260 (at
Decatur) for 2009, compared to an estimated $330 for this year.
"Farrow-to-finish pork producers operated under losses for much
of 2008 -- average about $5 per live hundredweight, or about $14 per
hog," he said. "For 2009, the current price relationship could
return the industry to about $5 per hundredweight of profits as
prices move from the mid- to upper $40s in the first quarter, to the
lower to mid-$50s in the second and third quarters, and finish the
year in the very high $40s."
However, he repeated, uncertainties will abound, including the
extent of the recession's impact on domestic consumption and trade.
"In addition, feed prices, while more moderate now, will remain a
key to a profitable 2009," said Hurt. "Opportunities to both hedge
lower feed prices and profitable lean hog futures prices for 2009
are now available.
"All producers will welcome these improved prospects, and
high-risk producers will especially want to consider taking some of
these positive margins."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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