This week, we have seen a seasonal rally in cash hog prices, rising to over $60/carcass cwt. Still, in order to be in the black, prices need to increase to $70/carcass cwt. Even with improved prices, the equity drain is continuing for the pork sector. The next 30-60 days are crucial for prices to rally to a level where the industry can return to profitability. Many producers are tired. Working capital is getting tighter by the day. Hopefully, the much-needed higher prices will get here sooner rather than later.
Packers and Retailers Meet – I was fortunate to be invited to a meeting, recently, that included pork packers and major retailers. I am grateful to the National Pork Producers Council and the National Pork Board, sponsors of the meeting, who asked me to speak to the group about the economics of the swine industry. My presentation stressed that our breakeven price to raise hogs to market weight has gone up over 30% – returning to 2007 levels. Cost of production averaged about $160/head in 2008, while revenue came in at about $138/head. Price received was not the problem. What it took to raise our product was, and those costs are now higher than the industry has grown used to.
Going forward, if we say that corn will average $4/bu. and soybean meal holds at $300/ton, the average cost of production for a 265-lb. market hog will be approximately $135-$140/head. For the industry to be viable, hog prices must average $75/carcass cwt., or $145-150/head. Pork prices have never held that average price for an extended period of time. So, the question remains: What does our supply need to be in order to average that price? Truth is – I have no idea. But, I do know this is the new plateau that the swine industry must get to in order to be profitable in the foreseeable future.
Export Demand vs. Domestic Demand – It seems that the U.S. swine industry has been focused on exports, with much less attention given to what is happening with domestic demand. This concern surfaced as I listened to the retailers at the National Pork Producers Council/National Pork Board meeting this past week. Per capita pork consumption in the United States has been flat for a very long time. The only growth we have seen is the result of population growth. The food industry is a very competitive business and consumers have a wide array of products to choose from. I feel the U.S. pork industry needs to reposition itself as a healthy source of protein. The poultry industry continues to gain more market share as a healthier protein source than beef or pork. The pork industry needs to stress that we have healthy, nutritious products that taste good when cooked properly. The industry needs to educate the public and to tell our story. U.S. consumers are our largest customers and we need to focus on how we can grow that market. We need to ask retailers and consumers what we need to do to get more pork on tables. If we can figure that out, maybe we won’t have a supply problem.
Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com