“It is rare for a monthly average hog price to exceed $60,” says Chris Hurt, Purdue University Extension economist. “Since 1970, that has occurred only 13 times. There have been more blue moons since 1970, a total of 15.” (A blue moon is defined as a second full moon within a single calendar month, which happens every two or three years.)

According to Hurt, the outlook is for strong and profitable hog prices to continue, but below the rare $60 mark. USDA’s June Hogs & Pigs Report found the U.S. breeding herd down 3 percent from last year’s level, a drop of 180,000 sows. The North Carolina herd accounted for 110,000 of that reduction, with the Texas herd contributing 40,000 head. These two states reflect reductions in the herds of large pork production corporations, or bankruptcies, which occurred last fall and winter.

“The breeding herd peaked in September 2007, when losses began to set in due to high feed prices and collapsing hog prices,” Hurt notes. Losses continued through this February, finally returning profits in March.

This spring’s impressive profits have some asking if producers will quickly expand.
 
“Losses eroded much of the equity of many producers, so they and their lenders want a period of profits to stabilize their financial position,” Hurt says. “The extremely high May hog prices were a short-term aberration. Retail pork prices will continue to move higher this summer and will slow pork consumption. Retail pork prices already reached record highs in May at $3.04 per retail pound, and will continue to climb this summer. The economic recovery is slow and unemployment will remain high, contributing to overall weak retail demand and moderate live-hog prices.”

Hurt says pork supplies will be down about 4 percent in the last half of 2010, reflecting almost 4 percent fewer pigs in the market herd. “Given expectations for lower feed costs, hog weights are expected to rise in the last half of the year after being down fractionally in the first half,” he adds. 

Summer farrowing intentions are down 2 percent, but only 1 percent for fall. “This means that pork supplies will rise slightly during first quarter 2011 and by about 2 percent in the second quarter,” Hurt says. “Some additional production increases should be expected for the last half of 2011, with perhaps 3 percent to 4 percent more pork. This would increase 2011 annual production by 2 percent to 3 percent over 2010.”

Hurt expects live-hog prices to be in the high $50s per hundredweight through the summer, followed with a seasonal decrease in September. Third-quarter prices are expected to average between $56 and $59. For fourth-quarter 2010, the average price is expected to fall in a range of $50 to $53, with winter prices slightly lower.
 
“For 2011, live-hog prices may average around $55 per hundredweight in the spring quarter and around $53 in the summer,” Hurt says. “Further buildup of pork production by fall 2011 might pressure prices back to $45 to $50 for the final quarter of 2011.”

Feed costs for the next 12 months appear to be the lowest since 2007. That will drop total production costs to about $46 to $48 per live hundredweight for that period. That compares with estimated costs of $54 in 2008 and $50 in 2009.

Second-quarter 2010 profit levels are estimated to approach $33 per head, $29 in the third quarter and about $15 in the final quarter. If those estimates are realized, it means 2010 profit per head would be near $21 compared to $24 of loss in 2009 and $17 of loss in 2008.
 
According to Hurt, the 2011 profit outlook is positive, especially through the summer. “By fall, prices could drop closer to costs of production.” he notes. “Yield uncertainty for the 2011 crops also could greatly impact feed prices. Early projections for 2011 are for profits at $11 per head through the first three quarters.

“Over the past two years, the pork industry has been forced to adjust production downward to accommodate corn prices at $4 per bushel or higher. Now corn (and soybean meal) prices are lower. Those who believe corn prices will generally move back to $4 or higher would not want to expand hog production. Alternatively, those who believe corn will be under $3.50 might elect some moderate expansion in the range of 3 percent to 5 percent. Only time will tell who is correct.”

Source: Purdue University