 "Most pork producers who take the market risk are in the midst
of another financial disaster," said Chris Hurt. "They face a
period of excessive pork production while also battling feed
price escalation of historic proportions. There seemingly is no
cure until the financial carnage is sufficient to decisively
reduce the size of the breeding herd."Hurt believes there may
eventually be a recovery -- for the producers left.
"Hog prices probably will not improve sufficiently to reach
break-even levels until the late spring of 2009," he said.
"Then, the last half of 2009 and 2010 could be a period of
favorable profits.
"But the question remains, who will be left standing by that
far distant point?"
Hurt's comments came as he reviewed the pork market, where
the unrelenting excess pork supplies that began last October
continue in 2008. In the final quarter of 2007, pork supplies
were up an astonishing 10 percent.
"The New Year brought no relief, as production through March
1, 2008, was up 11 percent, and there is no end in sight," he
said. "Sow liquidation is in the planning stages but not yet
showing up in the slaughter numbers.
"Smithfield's has announced a reduction of 40,000 to 50,000
sows. The Canadian government is going to subsidize liquidation
of sows in a national buyout program that may help reduce their
breeding herd by up to 10 percent. Producers there will have to
keep those herds out of production for three years."
U.S. sow slaughter so far this year does not yet indicate a
movement toward liquidation. While the total sow slaughter has
been modestly higher than last year, the rate of slaughter as a
percent of the herd has not increased. In other words, the
higher slaughter is a result of the larger breeding herd.
A high rate of farrowings has likely extended through at
least February, he noted. These pigs will be coming to market
over the next six months, so the earliest a reduction in the
extremely high rate of pork production can occur is September.
"This implies continued high slaughter rates through the
summer of 2008 and is a price-depressing factor for summer 2008
lean hog futures prices," Hurt said.
Hog prices in the first two months of 2008 averaged near $40
per live hundredweight, with costs of production for farrow-to-finish
operations estimated to be near $54. First-quarter losses are
now anticipated to be about $34 per head after estimated losses
of $19 per head for the final quarter of 2007.
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"The record quarterly losses, from my estimates, were in the final
quarter of 1998, at $45 per head," he said.
"Hog prices will improve this spring and summer. However
continued large pork supplies are not expected to allow hog prices
to catch up to spiraling costs."
Live-weight prices are expected to rise to the high $40s in the
spring quarter and to the extremely low $50s for a third-quarter
average. Some reduction in supply should be evident by the last
quarter of 2008, with prices in the higher $40s. For the year, an
average price of about $47 per live hundredweight is expected.
"Grain and soybean prices are expected to face a year of
unprecedented height and volatility," Hurt said. "The pork industry
must unfairly adjust to this extreme risk to their margins.
"Given corn and soybean meal prices observed in the futures
market on March 3, 2008, costs for farrow-to-finish producers are
estimated to currently be in the high $50s and are estimated to
reach near $60 this summer. For all of 2008, estimates are for costs
near $57 and hog prices near $47, for an average loss of $27 per
head. This compares with an estimated loss of $15 per head in 1998,
the previous record loss year."
Lean futures prices suggest higher cash prices than forecast
here, he noted.
"Using current lean futures (and adjusting basis about $2 lower
than average) provides hedging opportunities at about $54 for the
third quarter of 2008, compared to the forecast in the very low
$50s," Hurt said. "For the final quarter of 2008, futures are
providing about $52, compared to the forecast of $47 to $48."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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