Hog producers should start thinking through price risk management strategies that can be exercised in the next 60 to 90 days, urges a Purdue University Extension marketing specialist.
“For those who want to reduce price risk, buying corn and meal futures now and also pricing lean hog futures should enable them to about cover their costs this year,” says Chris Hurt. “Given the current anxiety, this should be pleasing to some. For those willing to take some added price risk, buying a portion of corn and meal futures now and then waiting until early May to price lean hog futures would play more favorably to the seasonal price patterns, and might enable producers to pick up about $1-2/cwt. of profits for 2007.”
Hurt comments that the size of the 2007 corn crop will largely dictate the financial fate of producers for the next 18 months.
“A large crop means a big sigh of relief, while a small crop means sharper liquidation of the breeding herd and deeper financial losses,” he notes.
So far this year, hog prices have registered somewhat higher than anticipated, Hurt says. Year-to-date for 51-52% lean carcasses for the eastern Corn Belt, live hog prices have averaged $46.57/cwt. Based on that recent history, Hurt projects a yearly price average of $50.37/cwt. Cost of production for this year is estimated at $50/cwt.
“If current futures markets are correct, and live hog prices also average near $50/cwt. live, then producers will escape a potential bombshell with a nearly breakeven year,” he says.