The occurrence of high hog prices compounded by high feed prices have pork producers walking a tightrope and consumers seeing the consequences – record-high prices for pork.
“Producers will be receiving record-high prices for their hogs, but also paying record-high prices for feed,” observes Chris Hurt, a Purdue University Extension economist. “The outlook is in balance right now as hog prices are expected to be high enough to cover feed prices. However, the consequence of losing that balance could have extreme financial consequences on producers if consumers balk at high pork prices or weather threatens 2011 crops.”
Hurt says one reason why corn and hog prices are moving in the same direction is because meat supplies have been greatly curtailed over the past four years.
“Hog producers had a major erosion of equity and have little ability to continue production if feed and hog prices get out of balance,” he explains. “If feed prices increase, there is a perception that pork production will almost immediately drop thus increasing hog prices.”
Another reason is that food prices in the United States and globally are all moving higher.
“We are in a period of generally rising prices, and that means inflation will tend to increase prices of all food products,” he says. “Different products will move up at different rates depending on their individual supply and demand situation, but inflation raises ‘all ships.’ Almost all commodity prices are currently increasing as a result of strong demand relative to supplies, but perhaps additionally stimulated by accommodative monetary policy by the U.S. Federal Reserve.”
Pork producers should be concerned that the delicate balance between high hog prices and high feed prices could be upset, Hurt says.
“There is a concern that consumers will back away from pork consumption as grocery store prices shoot up this spring and summer. In order to pay $7 or more for corn, live hog prices at times will have to move toward $75/cwt this spring and summer, up from the current price in the low $60s. Will consumers bear this financial burden?”
Weather is another concern.
“There is a second concern that corn prices will rise above $7 this spring and summer, and/or that the anticipated $1.50-a-bushel drop in cash corn prices from this summer to fall does not develop due to adverse growing conditions,” Hurt says.
“Needless to say, pork producers are deeply concerned because an imbalance between costs and hog prices means huge financial risks. They are anxious to see how this era will play out and are concerned for the survival of their businesses if costs move sharply above hog prices. In that case, they may fall off the tightwire with no safety net,” he says.