More Pork Likely in 2012
USDA’s latest swine inventory survey indicates that barrow and gilt slaughter for the second half of 2011 will run close to last year’s levels, except for about six weeks in July and early August. That period is expected to be 3.3 percent higher.
The June pig crop report predicted June-to-November farrowings to be down 1.9 percent. Given that pigs per litter have increased at an average annual rate of 1.9 percent over the last 18 quarters, it’s reasonable to expect the June-to-November pig crop to be near 2010’s level. Thus, hog slaughter for the first half of 2012 should nearly mirror that of 2011. On average, slaughter weights increase 1 pound per year, so 2012 pork production will likely be slightly above this year.
Cheap Corn Gone for Good
The days of $2 corn and stable feed costs are long gone. During some weeks this year, there’s been more variation in corn prices than in all of 2005 and twice as much as in calendar year 1991.
Recent years’ fluctuation in hog production costs has been equal to 90 percent of the hog price fluctuation. Producers need to actively manage hog price risk and feed price risk.
USDA says this year’s corn acreage is the second highest since 1944, and it’s predicting a record harvest. Yet, USDA also predicts record-high corn prices with the average for the 2011/2012 marketing year at about $6 per bushel. That should yield a farrow-to-finish production cost near $88 per hundredweight (carcass). High prices also mean high risk.
Riding the Demand Cycle
Domestic pork demand in the first half of 2011 was up nearly 5 percent from 2010, with export demand for U.S. pork up 20 percent. This pushed first-half 2011 hog prices 17 percent above 2010 even though hog slaughter dropped less than 1 percent.
This year, pork exports could break the 2008 record, and China’s hog supply problems could keep 2012 exports strong. Barring more weakness in the U.S. economy, domestic pork demand should hold up as competing meat supplies decline; per-capita meat supplies could drop 3 pounds next year.
Hog demand tends to cycle. The last two upturns lasted 26 and 29 months. The current upturn is 17 months old and hopefully has another year left. Hog prices will likely exceed year-ago levels through first-quarter 2012.