"Hog producers lost a lot of money this year and we're seeing herd cutbacks in the United States and Canada, so we expect somewhat smaller pork supplies — probably 2 percent to 3 percent (next year)," says Purdue University agricultural economist Chris Hurt. "In addition to herd cutbacks, the financial crisis is pushing feed costs down."
Corn has averaged $4.60 a bushel for pork producers in 2008 and is expected to average around $3.40 a bushel for 2009, he notes. This downward price shift for corn also applies to soybean meal. This year, producers paid about $330 per ton for soybean meal. Hurt estimates 2009 soybean meal prices look to be around $250 per ton.
Of course, much is dependent upon next year's crop and numerous usage factors. Still, Hurt notes that pork producers have the opportunity to lock in margins using the futures market to sell lean hogs and buy grain, and they should not overlook that prospect.
In considering the tight general economy, Hurt expects U.S. consumers to favor pork over beef, due to it's lower price. This year, pork has averaged $2.92 a pound at the retail level and beef has been about $1.40 higher, averaging $4.31 a pound. Also, the chicken industry is setting up to cutback supplies, which bodes well for pork as the two meats align more closely in terms of switching consumer's buying habits than, say beef and pork.
"When you add these things together, we actually think pork production costs will drop from about $53 per hundredweight in 2008 to around $47 per hundredweight next year," Hurt notes. "When you combine lower production costs with the smaller hog supply, pork producers should see some profitability by February and March." Looking deeper into 2009, he expects "smooth sailing" regarding producer profitability.
"The revenue for the price of hogs averaged $48 this year," he adds. "That could be in the low-$50 range (per hundredweight) with production costs back into the mid-to-high-$40 range."
Again, Hurt cautions that many uncertainties still lie ahead for agriculture. "Knowing which direction feed prices and hog prices are headed with the current global financial crisis is difficult," he explains. "But we know that using the futures market to buy corn for 2009 and sell lean-hog futures provides profitable prices for producers right now. It's not something producers have seen for a while, but it's certainly a welcome site. There is profit opportunity now, and obviously when profits are there, it makes sense to at least consider it."
Source: Purdue University