As we enter 2012, the livestock and crop markets saw some sizable swings. Worries about demand and economic weakness (especially in Europe) pushed prices down, while concerns about supplies and extreme weather events pushed prices up. Overall, this see-saw pattern in the ag markets will continue in 2012, as these issues will not be resolved soon.

USDA’s early projections for 2012 show pork production increasing, while broiler and beef production decline. In fact, the projections indicate pork production would increase in each quarter of 2012, with the largest growth coming in the fourth quarter.  That is expected to be matched with an upswing in demand, both domestically and internationally.  USDA projections have exports continuing to grow beyond the surge in 2011, but at a smaller rate.  Domestic per-capita pork consumption is expected to rebound by roughly 0.5 pound. 

Average prices for the year are projected to be in the mid $60s per hundredweight (live), roughly what we had in 2011.  However, the quarterly pricing pattern is for slightly higher prices early in 2012, then turning slightly lower as the year progresses.  Late 2012 futures have factored in higher supplies for fourth-quarter 2012 and beyond.

Corn and feed prices also were on a roller coaster ride this fall and winter.  Since September, the December 2012 corn futures contract has exceeded $6.60 per bushel, dropped below $5.40 per bushel and was everywhere in between.  The feed markets have been rebalancing as corn became a higher-cost feed.  With more ample supplies of feed wheat and corn in some competing export countries, global demand for U.S. corn has softened.  While that drove corn prices down in the fall, concerns about La Niña’s impact on both the South American crop and the U.S. growing season ahead caused corn prices to rebound heading into 2012. 

With corn futures prices holding well above $5 per bushel, managing feed costs and profit margins will continue to be a key focus for 2012.  As the accompanying figure shows, prices are well aligned to start 2012.  Corn futures dip at the same time as lean hog futures. Pork industry expansion is expected to hit the market in tandem with increased corn production from the 2012 harvest. 

Early estimates have corn plantings above 94 million acres, up 2 million from 2011.  At trend yields and normal harvest rates, that means 13.75 billion bushels of corn.  But we will need some help from Mother Nature, as fall soil moisture conditions are less than favorable and the winter has been dry.

Year-end margins, based on lean hog, corn and soybean meal futures, are fairly strong for most of 2012. (Go to http://tinyurl.com/7ya6b5s for the latest estimates.)  Only in the last two months of the year do the margins fall below breakeven.  Good pricing opportunities were available and will likely continue well into 2012.   Price volatility is high, and significant market swings will continue, but the best time to think (and act) on margin management is when you have positive margins to manage.

The pork industry has come a long way in recovering from the global recession and the dramatic losses of 2008 and 2009.  Domestic and international demands are headed in the right direction.  Production efficiency continues to improve.  2010 and 2011 provided returns that started to fill in the equity holes from the recession, and 2012 looks to be another year of solid returns for pork.