Surprisingly strong hog prices this spring are tempered by three threats, says Purdue University Extension marketing specialist Chris Hurt.
The first threat is that pork exports won't be able to prop up hog prices after this spring. The second is that old-crop soybeans won't last. And the third is that bad weather will further drive up feed costs.
For the first quarter of 2004, pork production has climbed 2%, yet prices have jumped a remarkable 25%.
“The obvious conclusion is that demand is substantially better this year,” says Hurt. “The most logical explanation would rest with outstanding export shipments as a result of the sharply restricted beef exports due to bovine spongiform encephalopathy (BSE) and reduced broiler exports since February due to bird flu.”
Offsetting demand is a forecast of 20.3 billion lb. of pork for 2004, up 1% over last year's record. Slaughter is projected higher this spring and summer, driven by a 3% larger supply of pigs under 120 lb. on March 1, based on the Agriculture Department's last Hogs and Pigs Report.
Also driving higher slaughter numbers is the escalating influx of Canadian pigs, says Hurt. Through mid-March, about 1.9 million head were imported from Canada, including both pigs and slaughter animals, pushing Canadian imports to nearly 10% of U.S. slaughter.
“There remains some chance that pork supplies will drop modestly late in 2004 and early 2005 as U.S. producers indicate they intend to farrow 1% fewer sows this spring and 2% fewer sows this summer,” he says. “However, if Canadian supplies remain at current levels, these reductions may not show up as reduced pork production.”
Trade uncertainties over BSE and when broiler exports will resume complicate hog price forecasts. At this point, Hurt predicts hog prices will average $41-45/cwt. over the next 12 months.
Corn and soybean meal futures prices suggest cost of production will exceed hog prices by $2/cwt. during this time period.
Lean hog futures prices on March 29 averaged about $46.50 on a cash hog basis for 2004, about $3.50 above live price predictions. Hurt strongly suggests producers investigate forward pricing or selling lean hog futures as pricing options.