"The extreme uncertainty of the moment implies that pork
producers, like all of agriculture, should be conservative and
defensive," said Chris Hurt. "Perhaps management decisions in
2009 should be focused on increasing odds of survival, rather
than looking for big opportunities."
Hurt's comments came as
he reviewed the financial outlook for pork producers, who he
believes may be on the verge of returning to profitability after
experiencing losses dating back to October 2007.
"Hog prices are expected to rise seasonally in coming months,
and costs for feed continue to drop under the concerns of
slowing world economic activity," he said. "For the year, hog
producers are expected to see an average live price of about
$47.50 per hundredweight, but costs of production are expected
to drop to near $45.50, providing a modest profit."
While the crisis in the world economy is having negative
effects on pork demand, it is also helping to lower feed costs
as corn and soybean meal prices decline. In fact, yearly average
hog prices had very little variation in 2006, 2007, 2008 and now
in 2009 when average prices were between $47 and $48, he noted.
"Wild fluctuations in costs of production are the primary
reason for an estimated profit of $27 per head in 2006 and an
estimated loss of $17 per head in 2008," he said. "Changing
prices of corn and soybean meal have been the drivers of
Hurt predicted that hog prices will not see much enhancement
this year, due to reductions in demand, particularly export
demand. The robust pace of export demand in 2008 is not going to
be maintained, as the USDA anticipates a 14 percent drop.
"Even though domestic pork production will drop 1-2 percent
in 2009, fewer exports mean that pork supplies available to U.S.
consumers will rise modestly for the year, but with some
differences by quarter," he said.
Pork available per person is expected to rise modestly in the
first quarter and be 6 percent higher in the second quarter.
"The large increase in domestic supplies in the second
quarter is because of large exports to China in the same quarter
a year ago," he said. "More modest Chinese purchases in the
second quarter of 2009 will leave considerably larger amounts
for U.S. consumers. Availability will be about unchanged in the
third quarter and down 4 percent in the final quarter."
[to top of second column]
Hog prices on a live-weight basis are expected to average $2.50 for
51-52 percent lean carcasses in the first quarter of 2009. Prices
are expected to begin to rise immediately, from the low $40s
currently to near $50 by May. Late spring and summer prices are
expected to be in the lower $50s. Seasonal declines are anticipated
after August, with prices dropping to the mid-$40s by year-end. By
quarter, 2009 prices are expected to average about $42.50, $50, $51
and $46, respectively.
How much will declining corn and soybean meal prices lower costs
of production in 2009?
"Estimated costs for farrow-to-finish operations increased from
about $37 per live hundredweight in 2006 to a record high of $54 in
2008," he said. "The previous record-high estimated annual cost was
$48 in 1996.
"The current estimated 2009 corn price of $3.36 is down from
$4.78 last year. High protein meal price this year of $261 per ton
would be down $70 per ton from 2008. Estimated 2009 prices for corn
and soybean meal are based on the actual prices for the first two
months and adjusted futures prices as of March 2, 2009."
Given these hog price and cost estimates, pork producers are
expected to return to profitability in April. Estimated losses of
$11 per head in the first quarter would give way to profits in the
second through fourth quarters of $12, $15 and $6, respectively. For
the entire year, profits would be about $5 to $6 per head.
"Like all sectors of agriculture, pork producers face large
uncertainties from the general economic conditions," said Hurt.
"This means that reductions in the breeding herd will likely
continue throughout the year.
"Smaller pork supplies into 2010 would seem to put a brighter
face on profit prospects, but further loss of pork demand in a
weakening economy could offset those gains."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental