On paper, the U.S. pork industry has had six consecutive quarters of losses from fourth quarter 2007 into first quarter 2009, notes Chris Hurt, Purdue University agricultural economist. Some may have faired better, depending on their risk-management execution. With that in mind, the return to profit could be more widespread, again depending on the producers' abilities to control corn and soybean meal costs as well as holding the line on the breeding herd size.
"While producers have some optimism of getting back in the black, they do not want to turn that into breeding herd expansion," he adds. "Plus, 2009 holds continued uncertainties as the pork industry is caught up in both feed price adjustments and a world economic slowdown."
The U.S. breeding herd has been in a reduction phase in the second half of 2008, and USDA's December Hogs & Pigs Report showed a 2 percent cut from year earlier levels. The breeding herd has been below year-previous levels since June 2008. More importantly, fall farrowings were down 6 percent and winter and spring intentions are reduced 2 percent to 3 percent from the previous year, Hurt points out.
However, productivity is tempering the farrowing cuts."The related pig crops are not down as much because the number of pigs per litter continues to set new records," he adds. Pigs per litter for 2008 increased to 9.4, or by 2 percent, the largest annual increase since 1996. As a result, the fall pig crop was down only 4 percent.
Overall, production has to decline in order to generate "somewhat higher hog prices," he adds. Alsofeed prices need to moderate from 2008's record levels for the pork industry to think about profitability.
Market hog supplies in 2009 are on pace to be down 2 percent, with the largest drop of 4 percent in the second quarter. For the year, Hurt projects 2009 production to decline 1 percent to 2 percent from 2008 levels due to heavier market weights, although some analysts are expecting a 3 percent drop.
"Trade prospects are not expected to be as robust in 2009," Hurt notes. In the end, net trade-- exports minus imports -- represented 18 percent of U.S. production last year. That figure is expected to fall to about 16 percent this year. That could put about 1 percent more pork on the domestic market, but that's a wash as the annual population growth equals 1 percent. Also, competing meats, especially chicken, are on pace to produce less this year as well.
In 2008, the average live-hog price for 51 percent to 52 percent carcasses tallied $48 per hundredweight. "Hog prices are expected to be somewhat higher as the U.S. recession is not expected to have a measurable impact on pork demand," Hurt says. "Pork is a lower-priced meat compared to beef, and some consumers seem to be shifting their purchases."
Looking ahead to 2009, Hurt expects live-hog prices to average $51 per hundredweight. He looks for first-quarter prices to average $47 per hundredweight, then rise sharply into the mid-$50s for the second and third quarters. Supplies increase and pressure returns for the fourth quarter, with hog prices in the $40s.
Production costs will again be key to the industry's profits or losses. "Using corn and soybean meal futures prices on Jan. 5, and adjusting to expected cash prices, production costs may decline $3 to $4 per live hundredweight in 2009," says Hurt. "This assumes that 2009 corn prices will be down 60 cents per bushel and soybean meal about $25 per ton lower."
In 2008, the estimated production cost for an average farrow-to-finish producer was $53 per live hundredweight with prices at $48, resulting in a $5-per-hundredweight loss or nearly $15 per head.
"For 2009, costs are expected to be near $50, with prices about $51, for a profits of $1 per live hundredweight or about $3 per head," Hurt concludes.