With July corn futures already in new territory, pushing beyond $7 per bushel, how high will prices climb is the question of the day -- and the question weighing heavily on pork producers' minds. With flooding in much of the Midwest and the corn growing season barely underway, the corn crop outlook is bleak. Certainly yield trends will not be met, and it will be a nervous summer focused on weather.
"The United States won't run out of corn," is a common statement, as if that's supposed to offer comfort. While that is true, what price will that corn demand? Spot shortages could occur, points out Glenn Grimes, University of Missouri agricultural economist, especially if you are located near ethanol plants. Although Grimes admits, "with the crop in the ground that we have now -- we will idle some ethanol plants within the next year."
At World Pork Expo last week, Steve Meyer, president Paragon Economics, predicted a corn price range of $4.50 to $8.50 per bushel. But flooding since then suggests that upper-end price may not hold.
"Two years ago, we had $2-corn. At $5.50 per bushel, we had increased pork's production cost by $17 per hundredweight," notes Grimes. "It will likely be higher than that in the future." He believes corn prices are rising to a new plateau. Hog prices will eventually follow suit -- with predictions of a trading range of $80 to $90 per hundredweight on a carcass basis.
U.S. pork exports have reached a new plateau as well. For the first four months of this year, they increased by 41 percent over 2007's level. One in five pigs now end up in overseas meat cases, and 2008 will set a 17th consecutive export record. The United States could actually export 20 percent to 30 percent more pork if the shipping containers were available. Some believe U.S. exporters may have to provide an incentive to get more containers returned.
"Up until 2007, U.S. pork exports reduced the domestic pork supply," notes Grimes. Today record pork production has plenty of pork to go around. For the first four months of 2008, domestic pork demand increased 2 percent to 3 percent, which Grimes points out has pushed live-hog prices $2 to $3 higher than they would be without that domestic boost.
Long-term, exports look hopeful. It may be hard to believe, but producers in other countries are actually suffering greater losses than U.S. producers. "Producers in Canada, Denmark and Spain are cutting back," notes Grimes. That is setting the United States up as being a reliable, low-cost pork supplier to the export market.
While that's good news, Grimes emphasizes the need for U.S. pork producers to do some cutting back of their own in order to return to profitability. "We need to cut the North American breeding herd by 6 percent to 12 percent," notes Grimes. The Canadians have started in on their portion. Grimes looks for a 2 percent decline in the U.S. breeding herd in USDA's June Hogs & Pigs report, but he says more will need to follow