Facing uncertain hog and corn markets, the nation’s pork producers are maintaining the size of the breeding herd. Little change in the hog herd is expected until the feed supply situation is better known this fall, says Purdue University agricultural economist Chris Hurt.
“The USDA’s June Hogs and Pigs report indicated that producers maintained the size of the breeding herd over the past year,” he says. “North Carolina continued to lead the states reducing their breeding herds. The national breeding herd has declined 5% in the past three years, and North Carolina alone accounts for about half of that total.”
The smaller sow herd attained 10 pigs/litter for the first time ever this spring, meaning the number of market hogs was up by nearly 1% over a year earlier, he says.
Retail pork prices will be record-high this year, as high feed prices over the past four years are finally being transmitted to consumers.
“Retail prices through May this year have averaged a record $3.35 per pound, which is up 14% from $2.93 a pound during the same period in 2010. Everyone in the pork marketing channel is sharing as packer gross margins are up 10%, retail gross margins are up 14%, and producers have received 16% higher prices,” he says.
Pork prices are receiving strong support from a record level of pork exports. Through April, exports are up 19% over the same period in 2010, Hurt says.
“For the first four months of the year, exports represented an amazing 22% of all the pork being produced in the United States. The big export increases this year are heading to Asia, led by South Korea, Japan, Russia and China. USDA projects that exports for the entire year will be up 15%,” he says.
“There just isn’t much pork left for U.S. consumers as supplies per person will be down about 3% in 2011,” Hurt suggests. Although U.S. pork production will rise about 1%, large export sales mean tight domestic supplies.
For the first half of 2012, pork production is projected up less than 1%, as farrowing intentions drop 3% this summer and are down 1% for this fall. Somewhat higher production will come from more pigs per litter and from higher market weights, he says.
For 2011, live hog prices are projected to average a record $63.50, compared to $55 last year.
“Corn price volatility is a major component of the pork production uncertainty,” Hurt says. “Corn prices reached their peak on June 9 when Midwest cash prices were commonly $8 or higher in some locations.
But corn price declines of as much as $1.50 per bushel since that time have dramatically altered expected cost structures for pork producers, he adds.
“Using current corn costs of $6.50 per bushel this summer and $5.90 for the fall, cost of production for farrow-to-finish production is about $63 this summer and $60 this fall. This means the production sector would have a profit potential of about $10 per head in the third quarter and $2 per head in the fall,” Hurt estimates.
Some profit is likely in 2012, possibly averaging about $7 per head given the current outlook – but much uncertainty remains.
“Will this modest profit potential result in herd expansion? The answer is a clear no. Pork producers know that corn and soybean yields are not yet assured and that the feed price outlook could still change sharply, depending on final yields in the United States and the northern hemisphere,” he says.
Consequently, herd expansion will not occur until sub-$6 cash corn prices are assured this fall. Hurt projects it could be very late 2012 before pork production could begin to increase.