The last two years have been financially devastating to many pork producers. The problem is just too many hogs. The forecast for '99 was for a new record hog slaughter of 101.6 million head.
This year promises plenty of challenges, but some production relief and better hog prices, says Ron Plain, University of Missouri agricultural economist. Production is expected to be down 4% and total commercial slaughter is projected to be 97.6 million head.
Terminal market live hog prices should average $37-39/cwt. this year. Most producers should see prices $2-3/cwt. higher, notes Plain. At that level, prices will be profitable for the first time since 1997.
But hogs in the $45 range are a distinct possibility, especially June-August. Complementing market prices is low cost of production. Iowa State swine enterprise recordkeeping data indicates average cost of production for a farrow-to-finish hog operation is around $38/cwt., the lowest since 1987. A few farrow-to-finish operations have production costs of $32/cwt.
If producers want to see prices well above year-earlier levels, they need to make production cutbacks to keep total production under 100 million head, stresses Plain. Aiding that effort should be the new Brandon, Manitoba packing plant and the Canadian government easing trade barriers to U.S. hog imports.
Meanwhile, USDA has raised its price forecasts for this year, based on stronger product demand. USDA's new projection is for 51-52% lean barrows and gilts to average $37-40/cwt. Pork ending stocks are forecast at 500 million lb., down 25 million lb. from estimated ending pork stocks for 1999.
Pork producers saw it all in the last six years of the '90s, recalls Plain. There were $20 hogs the fourth quarter of '94, $53.42 average price hogs in '96 and $51.30 average price hogs in '97. Then came the disastrously low returns reaching the single digits in late 1998 and price stagnation through last year.
But it wasn't all bad. Pork demand in '98 was the strongest of any year since '92, says Plain.
This year, preliminary data points to pork demand increasing, but at a slower pace than in 1998, comments Plain. Hog prices for '99 will be the same as in '98, despite the fact that slaughter numbers and weights have yet to drop. That's due to increased consumer demand and more slaughter capacity.