Sixty-Dollar Hogs Are Rarer Than a Blue Moon

In May, live hog prices averaged about $63 per hundredweight.“It is rare for monthly average hog prices to exceed $60”

June 29, 2010

3 Min Read
Sixty-Dollar Hogs Are Rarer Than a Blue Moon

In May, live hog prices averaged about $63 per hundredweight.

“It is rare for monthly average hog prices to exceed $60,” remarks Purdue University Extension agricultural economist Chris Hurt. “Since 1970, that has occurred only 13 times. There have been more blue moons since 1970, a total of 15.” A blue moon is characterized as a second full moon in the same calendar month, which only occurs every two or three years.

Still, the outlook is for strong and profitable hog prices to continue for some time, although prices will generally range below the $60 mark. Fueling profitable prices is USDA’s quarterly June survey of hog producers, which showed the U.S. breeding herd remains 3% below last year’s level. That decline of 180,000 sows was led by smaller herds in North Carolina and Texas.

“The breeding herd was at a peak in September 2007, when losses began to set in due to high feed prices and collapsing hog prices,” Hurt says. Losses continued through this February, then prices finally turned profitable in March.

The high profits have some wondering if producers will quickly expand.

“Losses eroded much of the equity of many producers, so they and their lenders want a period of profits to stabilize their financial position,” Hurt comments. “The extremely high May hog prices were a short-term aberration. Retail pork prices will continue to move higher this summer and will slow pork consumption. Retail pork prices already reached record highs in May at $3.04/retail pound, and the climb will continue into the summer. The economic recovery is slow and unemployment will remain high, contributing to overall weak retail demand and more moderate live hog prices.”

Hurt projects pork supplies will be down about 4% for the last half of the year, reflecting almost 4% fewer pigs in the market herd. “Given the expectation of lower feed costs, weights are expected to rise in the last half of the year after being down fractionally in the first half,” he says.

Pork supplies are expected to rise slightly in the first quarter of 2011 and about 2% in the second quarter. “Some additional increases in production should be expected for the last half of 2011, with perhaps 3-4% more pork. This would increase 2011 annual production by 2-3% over 2010,” Hurt says.

Hurt’s latest predictions are for live hog prices to average in the high $50s for the rest of summer before starting a seasonal decline in September. Third quarter prices are pegged at $56 to $59 and to fall to $50 to $53 in the final quarter of the year.

“For 2011, prices may average around $55 in the spring quarter and around $53 in the summer,” Hurt says. “Further buildup of pork production by the fall of 2011 might pressure prices back into a range from $45 to $50 for the final quarter of 2011.”

Feed costs for the next 12 months appear to be the lowest since 2007, dropping total live hog costs to an estimated $46-48/ hundredweight. This compares to $54 in 2008 and $50 in 2009.

Profit levels for the second quarter of 2010 were estimated near $33/head, $29/head for the third quarter and about $15/head in the final quarter.

The profit outlook looks rosy for 2011 as well, especially through the summer.
“By the fall, prices could fall closer to costs of production,” he relates. “Yield uncertainty for the 2011 crops could also greatly impact feed prices. Early projections for 2011 are for profits of $11/head, but all coming in the first three quarters.

“Over the past two years, the pork industry has been forced to adjust production downward to accommodate corn prices at $4/bushel or higher. Now corn (and meal) prices are lower. Those who believe corn prices will generally move back to $4 or higher would not want to expand hog production.

“Alternatively, those who believe corn will be under $3.50 might elect some moderate expansion in the range of 3-5%. Only time will tell who is correct,” Hurt says.

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