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Economist Predicts Breakeven in Coming Months

The next 12 months looks like a breakeven proposition for pork producers, with continuing uncertainties in feed prices and export markets

The next 12 months looks like a breakeven proposition for pork producers, with continuing uncertainties in feed prices and export markets, especially with the potential for more Chinese pork purchases as disease pressures may reduce Chinese production.

That’s the forecast of Chris Hurt, Purdue University Extension marketing specialist.

“Somewhat surprisingly, the pork industry has not made supply adjustments in the face of higher feed prices,” he says. “In fact, pork producers have been modestly increasing the breeding herd and seem content to continue to do so.

“There seems to be two explanations. The first is that producers of both beef and poultry were quicker to drop production with rising feed prices to the extent that total meat and poultry supplies have been lower this year. Second, hog producers were operating at a profitable margin when higher corn prices hit. Rather than trim the size of the herd, hog producers have largely absorbed the higher feed prices in the form of reduced margins,” Hurt observes.

Pork production has increased 2% this year, but prices have been higher as a result of better domestic pork demand.

“The improved domestic demand probably is related to less competition from other meat and poultry as those industries adjusted to higher feed prices,” says Hurt. “As corn prices rose dramatically last fall and winter, the beef industry made some sharp adjustments.”

Those adjustments included sending fewer animals to feedlots and reducing market weights. The availability of beef this spring and summer dropped nearly 2%.

“Adjustments to high corn prices also came quickly for the broiler sector where production per person was down about 3% from last fall through summer,” says the Purdue analyst.

For the first half of 2007, per capita pork production rose nearly 1%, while per capita declines in beef and poultry supplies actually meant total meat and poultry supplies were down about 1%. This resulted in higher farm prices in the first half of the year with finished steer prices up 10%, hogs up 8%, broilers up 26% and eggs up 47%.

“Higher feed prices have resulted in margin compression for the pork industry, but not losses,” declares Hurt. “In the year prior to higher corn prices – fourth quarter of 2006, estimated margins were about $7/cwt. In the year following the run-up in feed prices, margins dropped to a positive $2/cwt., with most of the compression resulting from higher feed prices.

“The future outlook for the pork industry appears to be one of near breakeven prices overall. Per capita supplies of meat and poultry are expected to begin rising again with pork production to expand by about 3% over the next year,” he forecasts.

The total meat complex is predicted to grow in the fourth quarter and to continue growing into 2008.

“As a result, 51-52% lean live weight hogs are expected to average about $46 to $49 this fall and winter,” Hurt forecasts. “With current corn and meal prices, these hog prices are expected to be near breakeven to a slight loss. Price prospects for spring and summer of 2008 improve several dollars to the very high $40s and low $50s. But with somewhat higher anticipated feed costs, profit margins will still only be about breakeven to $2/cwt.”
TAGS: Marketing