Pork producers’ profit prospects for 2011 (and into 2012) continue to dim slowly as grain prices/feed costs rise and hog prices pull away from their highs of late March.

Corn prices were up more than 10 cents per bushel across the board this morning (April 25) as planting progress lags behind last year’s pace and weather forecasts are not all that encouraging for this week. We must remember that comparisons to last year may be quite unfair as last year’s crop was planted unusually early. A new crop progress update is due out today at 4:00 p.m. (EDT), but it is unlikely to indicate any real catching up at this point. Anecdotal evidence tells us that little was accomplished in major corn-growing states last week.

My forecasts for breakeven costs for all of 2011 now stand at $86.47/cwt., carcass. While Lean Hogs futures prices continue to suggest record-high hog prices this summer, those prices are now $3-$5/cwt. lower than just a few weeks ago, meaning that per-head profit forecasts have fallen, too. Figure 1 shows estimates based on mid-session corn, soybean and lean hog futures prices on Monday, April 25.

This market is still offering 2011 profits of $6.27/head for average farrow-to-finish operations, but note that it is offering only $4.56 for the next 12 months (April 2011 through March 2012). Positive margins of $20 to $25/head this summer are substantially offset by losses of $10 to $14/head from November through January 2012. Costs are forecast to average over $88/cwt., carcass, over the next 12 months.

Frozen Pork Stocks Up
The USDA’s monthly Cold Storage report released last Thursday, April 21, indicated that March 31 stocks of frozen pork were slightly larger than one month earlier and significantly higher than last year. Total meat and poultry stocks were up 0.7% from last month and 8% from one year ago. Figure 2 shows all of the March 31 stocks data for meats and poultry. Figure 3 shows historical data for all species.

Ham inventories stood at 101.37 million pounds at the end of March, nearly 45 million pounds higher than last year. That increase accounted for over two-thirds of the entire increase in pork in cold storage and, I believe, is primarily a function of this year’s late Easter. Ham inventories declined by 14.5 million pounds during March, but that reduction really just marked the beginning of our “normal” Easter drawdown of hams. I expect April 30 stocks to be sharply lower – perhaps still larger than one year ago, but much smaller than on March 31.

I am still not overly concerned about frozen pork inventories given that there are ample incentives to move stocks at today’s prices and slaughter rates and production are falling in a more-or-less normal seasonal manner at present. There will be places for these pork items to go at profitable prices.

Chicken, Beef Stocks Up, Too
Stocks of frozen chicken and beef were also substantially higher than last year at +12.9% and +16.7%, respectively. The increase in chicken stocks was driven mainly by breast meat and wing inventories – not a ringing endorsement of improvements in the foodservice trade. It is important to note that chicken inventories did decline in March, however, in spite of production numbers that are still running above the levels of 2010.

Boneless beef stocks accounted for most of the increase in frozen beef tonnage. Steiner Consulting Group observed that they believe the increase was a move by end-users to get some supplies in hand before prices got even higher in late spring and early summer.

Dairy cow slaughter continues to run substantially higher than last year, while beef cow slaughter is down. A continuation of that decline may depend heavily on weather conditions in the Southern Plains. Both pasture and crop conditions from western Kansas and eastern Colorado southward are very, very bad and that could drive some beef cow liquidation in spite of good profit prospects for cow-calf operations.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com