Live hog prices are profitable again, and pork producers are feeling better about their profession, but long-term planning would be a wise strategy.
USDA’s March Hogs and Pigs Report showed modest expansion and that’s good news. High retail beef prices are lending a hand to pork, as is foot-and-mouth disease in Europe. Tight beef supplies and the resulting high prices should continue to make pork an attractive alternative to beef throughout the summer.
FMD, however, remains a wildcard. The market has already added $2 to $4 to hog prices due to FMD. U.S. pork export sales will have to increase significantly in order to pull more money into hog prices. That will remain a wait-and-see prospect.
Chris Hurt, Purdue University agricultural economist, cautions the industry about getting too optimistic over future benefits that could develop from Europe’s FMD plight. “A couple years ago, when Taiwan broke with FMD, everyone got excited about the potential to sell more U.S. pork to Japan,” he recalls. Then the Japanese economy went south and sales didn’t developed as hoped. “That was one of several things that contributed to the live-hog price declines of 1998 and 1999.” He adds that Japan’s economy is still not 100 percent.
Spring and early summer hog prices could build the temptation to grow hog herds further. It appears that we’ll have to wait for the June 1 pig crop report to know more because the trace record of USDA’s monthly reports remain suspect – even though they’re still in their infancy. The numbers simply didn’t match the March quarterly report enough to build confidence.
Meanwhile, Hurt suggests producers look for forward-pricing options. Now through June appears to offer the best prospects. Prices for the year are expected to peak sometime in June. From there, he looks for summer prices in the mid- to low $40s, with a decline into the high $30s by winter. (Provided FMD isn’t a positive or negative issue for the United States.)
“Producers are just now breaking even from the losses incurred in 1998 and 1999,” says Hurt. The question is how long are their memories– and those of their lenders? The industry has lost packing capacity since 1998’s severe squeeze, and there are no plans for new plants on the books. Signs already point to another slaughter capacity test for the fall of 2002. That’s another factor worth considering as you plan ahead for future production and marketing strategies.