Riding the Demand Cycle
Like much about the pork industry, demand also tends to cycle. The good thing about cycles is that they aid in predicting what lies ahead. After being down through most of 2009, live-hog demand turned positive in February 2010.
The combination of stronger demand and reduced slaughter pushed May hog prices to the highest level in 20 months. Unless something unusual happens, past cycles imply that hog demand should remain strong for another 12 to 18 months.
Corn Prices Pegged at $3.50
Much of the red ink during the last 30 months was due to record feed prices. USDA is forecasting this year’s corn crop will be the third record harvest in the last four years. Corn acreage is expected to be up 2.6 percent to 88.8 million acres. Due in part to this year’s very early planting, USDA is predicting an average yield of 163.5 bushels per acre. That’s the second highest ever, behind last year.
USDA expects the average farm price of corn will stay close to $3.50 per bushel for the next year or so. That should keep live breakeven prices for barrows and gilts in the low $50s per hundredweight.
U.S. Dollar Influences Exports
Last year, 18 percent of U.S. pork production was exported. How much pork gets exported depends on many things, especially how competitive U.S. pork prices are relative to other exporting countries. The U.S. dollar’s strength is a factor in this competitiveness, as a strong dollar makes U.S. products expensive for foreigners.
In 2008, the dollar was weak and U.S. pork exports were record high. In recent weeks, the dollar has strengthened rapidly as traders have fled from the euro. How the financial stresses unfold in the weeks ahead will influence what happens to U.S. pork’s much-needed export sales.