Pork producers are taking a proactive approach to get back in the black after the industry lost more than $6 billion in equity during the past 27of 29 months. Producers’ efforts to reduce supply and reclaim profitability finally seem to be paying off, as USDA reports show that first quarter 2010 slaughter rates were down 3.1 percent from 2009. Steve Meyer, president of Paragon Economics, predicts slaughter will be down 2.6 percent by the second quarter and 4.4 percent by the third quarter of this year.

Many producers are starting to feel a renewed sense of optimism thanks to the higher hog prices forecast for the remainder of 2010. “With less pork available, producers can expect the national weighted average carcass prices for negotiated hogs to range from $72 to $76 (per hundredweight) during the second quarter, and it may reach $74 to $78 by the third quarter,” he says. “Eventually the tightened supply will filter down through the chain, and consumers will see pork retail prices at more than $3 per pound.” Positive pork industry forecasts are helping to rejuvenate competitive meats, and the beef and chicken industries also are enjoying upward price trends. Of course, both have made some cutbacks of their own to help the entire protein complex.

Meyer reminds producers to monitor foreign import and export sales and the effects they are having on U.S. pork prices. “Canadian producers are reducing their herds more quickly than American pork producers,” Meyer points out. “According to first-quarter reports, the Canadian breeding herd was down 4.4 percent from last year, while Canada’s market-hog supply fell 4.5 percent. Canadian market-hog imports into the United States are comparable to 2009 and remain near 10,000 head per week, but the number of feeder pigs coming south has dropped by nearly 10 percent from last year.” Lower import rates also are helping reduce U.S. market-hog inventories and boost prices.

China has re-opened its border to U.S. pork for the first time since the Novel H1N1 influenza outbreak last April. Russia is allowing more U.S. pork in, as well, after resolving inspection issues. While this is good news for pork producers, Meyer predicts it will not have a significant effect on tonnage in the long run.

“China’s pork output is on the rise, which is keeping its supply ample and prices low. The U.S. tariff rate quota in Russia is about half as large as it was last year, so we may be faced with 75 percent tariffs very soon,” Meyer says. “When it comes to exports, producers should focus on major markets like Canada, Japan and Mexico because those countries account for the largest volume of U.S. exports and will have the greatest influence on producers’ profitability.”

USDA is forecasting that pork exports will be up 8 percent in 2010. Export growth will be dependent upon the value of the U.S. dollar; if the dollar continues to strengthen, rising U.S. pork prices will hurt the year’s export prospects.

The crop growing season and the potential effects on feed costs are other areas that you need to monitor. Corn and soybean meal have been more affordable lately than in the past 2.5 years. USDA’s Planting Intentions Report (issued on March 31) forecasts record-large corn and soybean crops this fall. “The abundant corn supply should keep feed costs low — relative to 2007 and 2009 — through the end of the year,” Meyer says. “If the Environmental Protection Agency rules in favor of higher ethanol blends, ethanol production will drive pork production costs above forecasts, averaging $65 per hundred pounds carcass weight.”

Of course, this summer’s weather conditions could impact crop yields. “Elwynn Taylor (Iowa State University professor of ag meteorology) tells us that the Midwest usually experiences 18-year drought cycles, and it has been 20 years since our last notable drought,” Meyer points out. “Precipitation is something to keep an eye on this summer.”

Meyer will present a complete economic outlook at World Pork Expo on June 9 and 10 from 12:00 p.m. to 2:30 p.m. in the Marketing Information Center, in the upper level of the Varied Industries Building on the Iowa State Fairgrounds in Des Moines. Taylor will join him to present a weather and crop outlook.

The outlook session is part of the Marketing Information Center, presented by Pork magazine, National Pork Board and National Pork Producers Council. (See the accompanying schedule.) For up-to-the-minute details, go to the World Pork Expo’s Online Resource Center at porkmag.com/wpx10.

Producers who attend the Marketing Information Center sessions will get the information they need to make better business decisions and improve their operations’ overall risk management strategies. PK


Stop by the WPX Marketing Information Center

The Marketing Information Center offers producers the opportunity to learn more about industry outlook and  trends that impact their bottom lines.

Wednesday, June 9

9 – 10 a.m. — Risk Management for Pork  Producers: Thomas Clark, associate director, CME  commodity products. Topics will include: why risk management is vital for a successful pork operation; developing a marketing plan; hedging with futures and options; and educational trading tools.

10:15 – 11:15 a.m. — International Standards:  Laurie Huenke, National Pork Producers Council; Steve  Larson, National Pork Board. Topics will include: how  international standards can apply to your daily responsibilities, and the risk to export market disruptions and closures.

Noon – 2:30 p.m. — Lunch and Outlook Session: Lunch sponsored by the National Pork Board.  Weather Outlook: Elwynn Taylor, Iowa State University Market Outlook: Steve Meyer, Paragon Economics

3 – 4 p.m. — Risk Management for Pork  Producers (repeated): Sponsored by CME

Thursday, June 10

9 – 10 a.m. — Risk Management for Pork Producers (repeated): Sponsored by CME

Noon – 2:30 p.m. — Lunch and Outlook Session (repeated): Lunch sponsored by the National Pork Board.

3 – 4 p.m. — Risk Management for Pork  Producers (repeated): Sponsored by CME