Pork producers facing the prospects of a third year in a row of losses might want to consider locking in prices for 2010 given current hog futures prices, according to Purdue University Extension Economist Chris Hurt.
Hurt predicts hog prices will average about $46 to $47 per hundredweight next year, starting at $44 in the first quarter, moving to near $50 in the second and third quarters and back to the mid-$40s in the final quarter.
“Given the assumption of $50 costs, this would still leave $10 of loss per head, the third year in a row of losses,” Hurt says. However, the current financial realities could mean the herd will decline, demand will improve and hog prices will track higher than the current forecast.
Futures traders believe hog prices will be higher, the economist says. Based on lean hog futures at the close on Nov. 20 and the average eastern Corn Belt basis level over the last five years, the futures market is predicting $50.50 for a farm level price next year, meaning 2010 would average out to be a breakeven price for producers.
“If there is an unfortunate side to these higher prices, it is that it may increase producer/lender optimism,” Hurt warns, “resulting in a smaller than needed reduction of the breeding herd.
“If so, selling lean futures now will be positive. As bleak as the outlook seems, it is ironic that the futures market provides a way to at least get through 2010.”