 "While recovery in hog prices is expected as the world tries to
return to more normal consumption, the financial stress may be
near a breaking point for some producers," said Chris Hurt,
Purdue University economist.In April, hog prices were ready
to turn upward. Then on April 24 came the first word of a human
flu the media had called "swine flu."
"Lean carcass values closed that Friday at $61 on April 24,
but just seven trading days later prices dropped by $10," said
Hurt.
World health representatives and the media were quick to
respond to pork producers' outcry regarding how a simple name
could damage their industry.
"However, much damage was done. The longest-lasting damage
will likely be in the export markets, which had been strong,
with a record 20 percent of U.S. production headed for foreign
markets in 2008," said Hurt.
Hurt says that in the domestic market, pork buyers at grocery
stores and restaurants were cautious as they did not know how
consumers would react. This, in combination with reduced
exports, caused a backup of pork in the wholesale market.
Wholesale prices dropped about 7 percent, but farm-level hog
prices dropped by 17 percent.
In mid-May, for a few days, carcass prices actually moved
higher than their April 24 benchmark.
"But these prices were viewed as too optimistic. As of May 22
carcass prices were down 8 percent from April 24," said Hurt.
Rising feed prices have also been a growing threat to
profitability. From April 24 to May 22, July corn futures rose
by 45 cents per bushel and July soybean meal futures by $57 per
ton.
"On April 24, hog producers were losing about $5 per head.
Now, that number is about $25 per head," said Hurt.
"Most everyone in the industry has been financially weakened,
and the outlook is more uncertain than usual," he said.
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Recovery in pork prices should be the norm as U.S. consumers return
to more normal buying patterns. World consumers who, in the first
quarter of 2009, had already reduced their purchases from the U.S.
will probably take longer to return to normal buying patterns.
Live hog prices in the second quarter are expected to average in
the mid-$40s. Prices should recover in June, with prices moving up
to the very high $40s and low $50s.
Prices are expected to average in the very low $50s in the third
quarter and then finish the year in the mid- to higher $40s.
In 2010, prices are expected to continue to improve in the spring
and summer at the mid-$50s.
"With current futures prices for corn and soybean meal, the costs
of producing pork is estimated at about $50 per head and moving
higher to about $52 this summer," said Hurt.
Unfortunately, these costs are higher than expected hog prices
for the rest of this year and through the first quarter of 2010.
"Losses for the last half of this year are estimated at $7 per
head. For the entire year of 2009, losses would be $12 per head,
compared with $17 per head of estimated loss in 2008," said Hurt.
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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