Thank goodness for a break in the ominous profit forecast for pork producers. But even then, it's a matter of reducing future losses, not reaping profits.
"Overall, the current futures forecasts say that producer losses will not be nearly as bad for the rest of this year as had been anticipated," says Chris Hurt, Purdue University ag economist. "But the markets also agree that it will be the spring of 2009 before the industry gets back into the black.
Hog market changes have occurred since mid-March, when live-hog prices were $35 per hundredweight, while today they are $58.
"The average seasonal price increase from early April to early June in the past five years was $11 per live hundredweight. This year, the seasonal increase has been $23. So it's far, more than double the normal increase," he notes. But what's stunning is that this remarkable price increase is occurring with U.S. pork production up about 10 percent from 2007 levels.
Demand is the most likely answer, and export demand is the biggest driver. While trade data lags several months, a look at the first quarter is the best we can do, and that data shows robust export for U.S. pork. For that period, pork exports were up 40 percent and imports were down 10 percent. The net impact was a 61 percent improvement in net trade volume.
"As a percent of U.S. production, this was 14.8 percent in the quarter, compared to 10.2 percent for the same period in 2007. The bottom line was that additional trade enhancement in the first quarter accounted for nearly 5 percent of all production," Hurt says.
Of course the U.S. dollar's weak value is helping pork producers out. As a result in the first quarter, shipments to Hong Kong (mostly trans-shipments to mainland China) were nearly seven times larger. Chinese purchases were up nearly three times. Exports to Russia were more than double and exports to Japan rose by 8 percent and to Korea by 27 percent.
Domestic demand has offered some strength as well. Pork is cheap and American shoppers are looking for a good deal as food and fuel are grabbing more of their paychecks. In April, for example, retail beef averaged $4.17 per pound and pork was $2.86. That's a $1.31 per pound difference.
While the pork profitability scenario is not yet traveling down a smooth road, Hurt sees some potential for optimism. "Costs would be about $58 this spring, summer, fall and winter, providing $2 to $4 (per hundredweight) of loss for farrow-to-finish operations," Hurt notes. "The world finally brightens for pork producers in the spring of 2009 with prices moving toward the mid-$60s with costs near $59, providing $5 to $6 (per hundredweight) in profits."