Hog prices may have bottomed out and may be on their way back up again, according to Purdue University Extension Agricultural Economist Chris Hurt.
“First, hog prices are probably at their seasonal lows in late November as consumers are buying their Thanksgiving turkey rather than pork. Second, lower corn and meal prices provide an opportunity to lock in feed prices at levels that were not available a few weeks ago,” he points out.
The 2011 outlook also provides a note of optimism for a year of positive margins on average, which producers may want to consider taking advantage of now.
Granted live hog prices fell from nearly $60/cwt in September to the mid-$40s by mid-November. With costs of production in the mid-$50s, this means losses near $15 per head in the final quarter, Hurt says.
“The saving grace is that profits were strong last spring and summer. Those profits will offset current losses and result in an estimated 2010 yearly profit of $14 per head,” he adds.
Hog prices typically rise slowly after Thanksgiving into mid-February, and then dip modestly into early April before moving to highs in May and June, he notes.
“This pattern of generally rising prices is expected into next spring and summer. Live prices are expected to average near $50 in the final quarter of this year and then move higher into 2011,” Hurt says.
First-quarter prices are expected to average near $55 per live hundredweight with second and third quarter prices stretching to $62 and $61. Last-quarter prices will drop to the mid- to lower $50s. These hog prices are derived as forecasts of cash prices from current lean hog futures, which means these prices can be hedged by pork producers, he says.
Lean hog prices have improved while feed prices have dropped, providing profitable market opportunities for 2011. Taking margins can be accomplished in the futures market by selling lean hog futures for 2011 and buying corn and meal futures, then later converting these to cash positions.
Margins can also be taken in the cash market or through combinations of futures and cash positions, he says. Hurt predicts an average of near $7 per head profit for 2011.
“The difference for 2011 is much higher hog prices after substantial herd reduction from 2008 to 2010. Live hog prices are expected to average near $57 in 2011, $10 higher than in 2008,” he says.