Twelve Months of Profits Predicted

Buoyed by no movement toward expansion and continued favorable feed prices, hog prices should be profitable for the next 12 months, says Purdue Extension marketing specialist Chris Hurt.

Based on the last Hogs & Pigs Report, U.S. producers reported intentions to farrow nearly 1% fewer sows this summer. The breeding herd on March 1 was about the same as a year ago and market hog numbers were up about 1%.

“With little threat of expanding pork supplies, pork demand factors continue to favor highly profitable prices through the summer,” he says.

Second-quarter live hog prices should average in the low-to-mid $50s. Prices for the third quarter should average in the low $50s.

“If producers follow through on intentions, this means that pork supplies will increase by only 1 to 2% for the rest of 2005,” states Hurt. “Larger supplies will be the result of more pigs/ litter and heavier marketing weights rather than increased farrowings.”

Two states reported large increases in breeding herds, Hurt notes. Iowa increased by 40,000 animals or 4%. Illinois added 20,000 animals, up 5%. Oklahoma added 10,000 animals, up 3%. States decreasing their breeding herds included Texas, Pennsylvania and Kansas, each with a 15,000-head reduction. North Carolina, Minnesota and Indiana all reduced breeding herds by 10,000 head.

Hurt cites three reasons why he believes producers haven’t responded to the highly profitable levels of this past year:

• First, the hog outlook didn’t turn favorable until May 2004, and even by summer many producers didn’t believe their good fortunes could last because of their inexperience with demand-driven markets.
• Second, producers realized two of the most important demand factors could turn sour at any time. “These were the increased pork exports as a result of mad cow disease-related beef trade and the narrow marketing margins at the packer and the retail levels.
• Third, producers have not been in an expansion mood since the terrible financial bust of 1998 and 1999. “Since that time, U.S. producers have reduced the breeding herd by one million head or 14%, as the growth in sow numbers was primarily in Canada,” says Hurt.

Pork demand rather than pork supplies will continue to be the main driver of pork prices in 2005. In 2004, pork demand led U.S. live hog prices to average about $52.50/cwt., based on 51-52% lean hog carcasses.

That was a $13/cwt. improvement over live hog prices in 2003. Improved pork trade accounted for about $3 of the $13, with the other $10 coming equally from improved retail pork demand and narrowing marketing margins, explains the Purdue economist.