The financial problems in the European Community may impact hog and pork markets – but profits should continue through the year, according to Purdue University Extension Economist Chris Hurt.
“Recent concerns over European debt have caused many markets to be more cautious about world economic recovery and consumer demand,” he says. “The related strengthening of the dollar has also dimmed prospects for meat exports. Last year demonstrated just how critical a recessionary economy was in weakening pork demand. A more cautious world now likely means some moderation in pork prices from recent lofty levels, but prices are not going to fold either.”
For the pork industry, the best news is that pork supplies are down and are expected to remain down for the rest of the year. So far this year, pork production has been down 4%. Population growth and expanded exports have reduced per capita availability about 5%. Per capita supplies should be down near 8% this summer, then down 3% to finish the year, Hurt says.
Rising retail prices in coming months will boost the cost of pork to consumers and buying patterns may be affected. “Consumers are expected to remain cautious this summer as the United States and world economic recovery remains slow and unemployment high,” he explains.
Hurt’s latest price projections are for an average live price of about $54/cwt. for 2010.
Moderation in corn and soybean meal costs continue to be a key part of the profit outlook.
“Our projections of the U.S. average farm price of corn are $3.44/bu. for 2010 and $3.65 for 2011,” Hurt says. “Soybean meal prices are projected at $279/ton for this year and $258 for 2011. The total cost projections are about $47/cwt. live for 2010 and $48 for next year. This compares with $54 in 2008 and $50 in 2009.” Profits per head are forecasted at $21 for 2010 and $10 for 2011 on a live basis.
“Hedging margins are much lower now than in early May, due primarily to lower lean hog futures and should probably be avoided right now. Production margins should be strong for the rest of this spring and summer. Most will just want to take these strong cash margins. Some recovery in lean hog futures prices seems likely given the generally strong cash prices expected and the hope for a more stable world economic situation. These may provide hedging margin opportunities for this fall and for 2011 production,” he concludes.