The improvement in hog prices should continue through the fall.
Pork producers squeezed by high production costs should feel some equity relief as hog prices continue their climb in early spring, says a Purdue University agricultural economist.
“Hog prices have already responded to the much-improved outlook, with more to come,” comments Chris Hurt. “Live hog prices began the year in the mid-$40s and reached the very low $50s by late February. The early spring rally should be ready to take off, hopefully with no failed launches, such as what occurred last year when H1N1 hit the news on April 24.”
By late spring and early summer, live hog prices should move into the higher $50s. Second-quarter prices are expected to average in the mid-$50s and third-quarter prices about $1 lower.
During the last quarter of 2010 and winter of 2011, hog prices are expected to drop back to seasonal averages in the $47-$49 range.
“Live hog prices are expected to average about $51/cwt. for 2010, with costs around $47/cwt. live. If so, this means a profitable year of about $10 per head, with the best of those profits coming this spring and summer. This compares with estimated losses of $17 and $23 per head for 2008 and 2009, respectively,” Hurt says.
Hog prices are benefitting from a breeding herd that has been reduced by 6% over the past two years. So far in 2010, U.S. pork production has been down by 7%, with about a 6% reduction in slaughter and about 1% lower market weights.
Hurt expects stronger pork demand as a result of higher exports, a recovering U.S. economy and the elimination of H1N1 from the news.
Other contributors to higher hog prices will come from an 8% increase in pork exports and more moderate retail price margins.
The positive turn in hog prices will help recover some equity erosion that occurred in the past two years. But $40/head losses for both 2008 and 2009 won't be recouped with $10-per-head profits in 2010.
“The bottom-line message to the industry is that feed costs are much higher and more volatile in these early years of the biofuels era,” Hurt says. “In response, the industry had to adjust to lower production, and most of that has been done. But the industry should not interpret the outlook for a little black ink in 2010 to be a signal to race back toward expansion. As an example, a U.S. drought in 2010 would quickly send feed costs back above breakeven levels,” he predicts.