Pork producers can anticipate a more optimistic outlook for the next several months, says Chris Hurt, University of Illinois agricultural economist. Costs are expected to decline and hog prices should remain at least high enough to cover expenses– hence the prospect of better days ahead.
After 14 months of operating at a loss, many producers will have an opportunity to improve their financial status, even improving their relationship with– and pique the interest of– lenders.
Pork producers can start anticipating lower feed costs, largely because of the prospect for abundant corn and soybean yields. Weather in Iowa, Minnesota and the Dakotas have been near perfect for crop growing conditions. It's true that there's some critical growing time ahead, and that Illinois and Indiana crops haven't been as lucky, but crop devastation is unlikely. Some are even talking about the prospect of record national-average yields– especially for corn.
USDA's June Hogs and Pigs Report suggests higher hog prices developing from pork production reductions. "Pork production costs are expected to drop about $2 per live hundredweight by this fall due to lower corn and soybean meal prices," notes Hurt. "Pork supplies are expected to be down an estimated 2 percent to 3 percent for the rest of this year."
"The breeding herd continues to decline as producers respond to discouraging prices and lack of profits over the past 14 months. The June 1, breeding herd was estimated to be down 5.9 million head, more than a 4 percent reduction from the same date in 2002," he says. "This is the fourth quarterly report indicating a decline in the breeding herd. Further declines are expected through 2003 so that pork supplies will continue to decline through much of 2004."
Most Midwestern states have reduced their breeding herds. Missouri lead with a11 percent cut, but closely followed by Iowa and Ohio at an 8 percent reduction. Illinois' herd was down 7 percent, Indiana down 6 percent and Nebraska was down 5 percent. These six states accounted for a reduction of 225,000 animals in the breeding herd, with the national total down 269,000.
States showing an increase in the breeding herd were Oklahoma, by 9 percent; Texas, 5 percent; South Dakota, 4 percent; and Minnesota, 2. Nationally, producers said farrow 2 percent fewer sows this summer and 1 percent fewer this fall.
"Pork supplies should continue to moderate throughout 2003 and into 2004," says Hurt. "Pork production is expected to be down 2 percent this summer and nearly 3 percent in the fall. Pork production during the first-half of 2004 is expected to be down 1 percent to 2 percent."
Prices for 51 percent to 52 percent lean animals on a live-weight basis are expected to average in the low to mid-$40s this summer, before dropping to the higher $30s for a fall-quarter average. Into the winter, prices are anticipated to average near $40, and the low-to-mid $40s for spring 2004.
Hurt points to past hog cycles for more optimism. "Observations from past hog cycles suggest that the herd reduction may be larger and that prices and profits will be greater than is now in view," he says. "In cycles since 1980, profits reached at least $10 per live hundredweight in the most profitable quarters." The current 'best estimate' for a high-price period would be spring and summer 2004.
"To achieve $10 or greater per live hundredweight, margins would require hog prices in the high $40s and above," Hurt says. He believes pork producers will see profitable hedging opportunities over the next 14 months.
University of Illinois