A combination of high demand, high feed costs and a smaller hog herd is expected to fuel record high hog and pork prices in 2011, according to a Purdue University Extension economist.
“Pork exports are expected to represent a record 21% of domestic production. The combination of modestly lower production, and higher exports, means that the available supply per person in the United States will drop by nearly 3% in 2011. This will be the foundation for record retail pork prices as there will be less pork available at a time when U.S. consumers’ economic conditions are improving,” says Chris Hurt.
Live hog prices will exceed $60/hundredweight or more than $80/hundredweight on a carcass lean basis. “The stimulus will come from smaller per capita U.S. supplies, much stronger demand from recovering United States and world economies and the inflationary policy of the U.S. Federal Reserve.”
Historically, $90 lean prices and $67 live were at the top of futures markets, but some current futures prices now exceed $90 for the spring and summer delivery contracts and raise the possibility of futures reaching $100 or $75 live.
“Some may argue that there is no historic precedence for prices that high,” Hurt says. “But there’s no historic base for costs of production this high as well. So a new era of high costs probably means there will eventually be a new era of record high hog and pork prices.”
Current forecasts place live hog prices at an average of $60 in 2011. Hog prices are projected to average in the high-$50s for the first quarter, in the mid-$60s for the second and third quarters and average in the mid-$50s in the final quarter.
“Record-high hog prices would seem to suggest great profit prospects for pork producers in 2011,” Hurt says. “Of course, that’s not the case as feed costs aim toward a breakeven year with costs estimated to be slightly over $60 as well.”