When corn prices jumped upward recently, so did livestock futures to a limited extent. Normally higher prices would be bearish for hogs and cattle, but traders indicated the upward movement in prices for livestock feed would quickly curtail any expansion and that would further limit meat supplies. Grain and meat prices have a strong correlation say economists, so what is the future for animals on the hoof in the coming year?

In the pork industry about every hog lost nearly $20 in 2008 and 2009. Part of the 2009 reason was the Novel H1N1 influenza epidemic that consumers worldwide thought was transmitted by swine, so they avoided the pork section of the meat case. Subsequently the economic losses pushed production down 6 percent in 2010, and Purdue economist Chris Hurt reports in the Purdue 2011 Outlook that hog prices rose enough to move the industry back to profitability. But he says it will have to remain profitable through 2011 to recover the 2008 and 2009 losses.

Hurt’s outlook for 2011 pork production is that producers will respond to the current favorable margins by beginning a modest expansion this fall and winter, with increased farrowings next spring and higher production in the fall of 2011. He’s predicting a 2 percent expansion, helped by a higher litter rate.

The bright spot for pork will be a 19 percent increase in exports this year and a 20 percent increase next year. Comparatively, 29 percent of U.S. corn was exported 20 years ago and today it is only 15 percent. Exports will help hog prices average $55 per hundredweight live for this year and in the $56-to-$57 range next summer, with production cost at $50. But Hurt says it will all come to an end in 2011 if herd expansion continues as expected, and that will lead to prices in the high $40’s in the winter of 2011 to 2012 and production costs above that. He says given the rise in corn prices, hog producers must be cautious about expansion, and that may need help from the 2011 corn crop.

Comparatively for the beef industry, the run of profitability should be longer as Chris Hurt sees it because the breeding herd continues to decline and there are no indications of any expansion. The cattle industry has also had to adjust to higher feed prices and that put feedlots in the red from 2007 until April of this year. Production has continued to fall because of feed costs, but while beef prices strengthened, consumer share of the meat case has been lost to other meats. Beef will only have 28 percent in 2011 as poultry and pork expand.

Finished cattle are expected to average $94 this year and $98 in 2011. Calf and feeder calf prices will also be strong, but high feed costs will keep a lid on them. Hurt says the best news for cattle producers will be that he reduced production will keep prices strong for years to come. If heifer retention does not begin until 2011 to 2012, that means beef expansion will not occur until 2013 to 2014. But Hurt says feedlot operators have the misfortune of volatile feed prices.

Summary:
Feed costs are climbing and that will hurt the pork industry quicker than the beef industry. Pork expansion is expected in 2011-- depending on feed prices and breakevens. All in all, there are slimmer margins ahead for producers who will have to cover higher production costs. However, the beef industry does not indicate any expansion until 2013 at the earliest and only feedlots will feel the pinch of the current outlook for high-priced corn.