Despite the “slightly bearish” Hogs and Pigs Report released this week, CME Group Lean Hogs futures rallied yesterday, according to the CME Group’s Daily Livestock Report (DLR) by Steve Meyer and Len Steiner. The rally was attributed to higher cash prices up more than $1.50/cwt., higher cutout values and rumors of more orders for pork from China. The rally lifted December futures above $85 in a pleasant surprise for producers.

Yesterday’s rally pushed profit potential for pork producers above $6/head over the next 12 months.

And despite record-high costs of production, producers have enjoyed a profitable summer. Iowa State University returns estimates calculated profits of $11 to $15/head from May through July and a surprising $21.31/head in August when live hog prices hit record highs.

With current corn, soybean meal and Lean Hogs futures, projections are for profits of about $10/head for September and relatively small losses for October through January. Current market prospects suggest a return to profits in February 2012 and a relatively normal seasonal profit pattern through September 2012.

The return to more certainty regarding feed ingredient production and prices raises the question of whether these profit prospects will be enough to drive further expansion. The DLR authors report that Cargill plans to continue repopulating the former Premium Standard Farms/Smithfield operations in west Texas. Major players in the swine business have used effective risk management strategies to accumulate the financial resources to grow their sow operations. But the analysts predict the reaction will be limited primarily due to continued feed cost risks.

On that front, USDA’s quarterly grain stocks report Friday morning estimated corn stocks at 1.13 billion bushels at the end of the marketing year and soybean stocks at 215 million bushels as of Aug. 31. Those figures were higher than expectations for corn and lower for soybeans, reports Stu Ellis of

USDA’s National Ag Statistics Service released the September 1 Quarterly Grain Stocks in all positions report. It showed old crop corn stocks in all positions on Sept. 1, 2011 totaled 1.13 billion bushels, down 34% from a year ago, but higher than trade expectations, causing a sharp drop in prices.

Old crop soybeans stored in all positions on Sept. 1, 2011 totaled 215 million bushels, up 42% from a year ago, but lower than trade forecasts.