A lot has been made of comparisons between 1998 and this year’s fourth quarter. After USDA’s September Hogs and Pigs Report, the danger of a train wreck appears to have been avoided and recovery should begin in 2003.
“It looks like hog prices will probably rise above cost of production sometime in May 2003,” says Ron Plain, University of Missouri agricultural economist.
John Lawrence, Iowa State University agricultural economist, believes this year’s low will occur in November, with prices strengthening into February. He expects them to fall, then rally into May, which is the typical seasonal pattern.
Plain expects hog slaughter to be below 2002 levels throughout all of 2003 by about 1 percent to 2.5 percent. This should result in live-hog prices averaging in the mid-to-upper $30s for most of the year.
While annual pork supplies will be shrinking, the demand side of the equation seems to be remaining strong, says Plain. Beef supplies are expected to be down between 2 percent and 5 percent next year. Broiler production will increase by 2 percent and turkey production should hold steady, says Plain.
So next year, total meat supplies are expected to be down. That’s good news considering the glut of meat and low retail prices that the meat complex faced earlier this year – caused in part by Russia’s embargo of U.S. poultry.
Exports are a significant factor in pork demand, and they are expected to remain strong. Lawrence points out the protective tariffs that Japan has placed on U.S. pork imports will be removed April 1, which will be extremely positive for the United States.
Domestically, pork demand will depend on the recovery of the U.S. economy. As a rule, the more money people have in their pockets, the more meat they include in their diets.
All in all, the prognosis for recovery is better than the hog cycle’s last recovery period in 1999. Plain points out that hog slaughter actually ran higher in 1999 than in 1998.
“It took a long time to reverse the price trend in 1999, because things didn’t get bad until the end of 1998,” he says. “This time, prices fell in the spring, so there was more time to turn things around.”
Plain says that in 1999, prices started out at record lows, and then the climb out was slow. Losses continued all year. In reality, 1999 carries nearly as many long-term scars as 1998 – even though it’s not readily associated with the spectacular price crash.
USDA’s September Hogs and Pigs Report indicates that 2002 will likely not have a price crash due to lack of shackle space, as 1998 did. So, the first difference between 1999 and 2003 will be that the hole to climb out of is not as deep.
There are other differences between the two years, though not all of them are positive. There is always more to the profitability equation than hog prices.
In 1999, feed prices were getting cheaper. This year, they are getting more expensive. Corn’s national average price for the growing year 1998/1999 was $1.94 per bushel, compared to the projected $2.55 for 2002/2003. For soybeans the numbers were $4.93 per bushel in 1998/1999 and $5.60 per bushel projected for 2002/2003.
Looking at those numbers it’s not hard to see that feed costs will hinder producers’ return to profitability. Still, the time lag has improved.
Pork producers appear to have shown unprecedented foresight and discipline in reducing production more quickly this year compared with 1998/1999. By reducing the breeding herd and pulling some of the abundant market hog supplies forward out of the fourth quarter, the price disaster has been averted. Pork producers will be on their way to recovery in 2003 versus putting in a full year of readjustment as seen in 1999.