While this year is setting up to be a profitable one for pork producers, there's still more downside risk than upside potential– especially on the demand side. At least that's the message that John Lawrence, Iowa State University agricultural economist, is trying to get out.
"Producers tend to forget that 2004 was demand driven not supply driven," says Lawrence. "This year should offer good prices, but there will be downward trend in 2006– it could hurt."
In 2004, there was a 2 percent increase in hog slaughter and 2.6 percent increase in pork supply from 2003's levels. Yet demand pushed live-hog prices to very profitable levels– about 30 percent higher than in 2003.
"The question is, are we at a new plateau and will demand stablize or will it decline," he asks. "Beef (supplies) could be a negative for pork this year." He expects lower domestic beef prices to attract consumers' attention, and he looks for importers such as Japan to buy more beef.
He looks for 3 percent to 4 percent more beef produced in the United States this year versus last year, and 2 percent more poultry. Of course there's the Canadian beef factor that remains in limbo in terms of if and when those shipments will again head south. USDA has set March 7 as the date to reinstate Canadian beef imports.
"The (swine) breeding herd is stable but producers will push their systems. We could get another 2 percent to 3 percent more hogs than the December report suggests," he says.
Based on that supply and his demand projection, Lawrence predicts first-quarter live-hog prices to average $47 to $50 per hundredweight. For the second quarter he looks for prices from $52 to $55; for the third quarter, $49 to $52; with the final quarter at $42 to $45. His average for the year is $48 to $52. His projected breakeven price is near $40.
He advises pork producers to follow quarterly pork demand. "But you have to recognize the difference between what an economist calls demand and what others call demand," he says. "Price relative to supply equals demand."