Today is a good time to be a pork producer. Live-hog prices are high and so is the supply, which means demand is good. It's been a while since producers have seen this type of financial relief. Even if higher feed prices are looming in the future, today is a positive and comforting time.
The question is, how long will it last?
Let's take a look,pork production is up nearly 5 percent for the year, yet hog prices are 28 percent higher than in 2003. Averaging $47.50 so far for the year, it's more than $10 per live hundredweight higher than for the same period a year ago.
There are three reasons why this occurred, says Chris Hurt, Purdue University agricultural economist.
1) First quarter 2004 pork exports rose 27 percent as countries substituted pork for restricted beef and broiler imports. Mexico increased pork purchases 88 percent, as U.S. beef purchases dropped 86 percent. Canada bought 31 percent more U.S. pork, as U.S. beef purchases dropped 95 percent. The Japanese, on the other hand, purchased only 7 percent more U.S. pork. Pork export prospects remain strong as it appears that beef-export restrictions will continue for much of the year.
2) U.S. diet trends and consumer purchasing patterns. Disposable personal income rose by 6 percent in first quarter 2004. Real Gross Domestic Product growth was a healthy 4.4 percent.
Strong consumer demand, driven by purchasing power and high-protein diets, has pushed wholesale pork prices sharply higher through May. Pork belly prices were up 18 percent, loin prices were 22 percent higher and ham prices were up 28 percent compared to the same period in 2003.
U.S. economy forecasts remain optimistic, with a 4.5 percent expected real growth in GDP this year, and about 4 percent for 2005.
3) Producers have been getting a larger share of retail pork expenditures. So far this year, producers have received 29 percent of the retail dollar spent on pork compared to 24 percent for the first five months of last year. Marketing margins have narrowed for both packers and retailers.
Will these factors remain positive through year's end? "The best answer now appears to be yes," says Hurt. "Opening beef and broiler export markets remains slow. World and U.S. economic growth looks favorable and producers' share of the retail pork dollar should remain strong."
There are some negatives, however. U.S. pork production will hit a record 20.6 billion pounds– 3 percent higher then in 2003. "So far, extraodinary demand has won the battle, and pork supplies should begin to moderate in September and move lower than year-earlier levels in the winter," says Hurt.
Live-hog prices are expected to average in the high $40s this summer before moving to the low $40s this fall, predicts Hurt. He looks for winter prices to be in the mid $40s. "Lean-hog futures prices are well ahead of these forecasts, and appear to offer excellent hedging opportunities," he adds.
"Everyone knows that feed prices will be volatile for the next couple of months," says Hurt. After strong start, planting season slowed with excess rains. Final soybean plantings will run late, and the turbulent spring weather could reduce corn yields.
"Futures prices for lean hogs, corn and soybean meal provide profit opportunities for pork producers this summer, and roughly breakeven opportunities for the fall and winter," notes Hurt.