While more information will be available with the Dec. 30 release of USDA's Quarterly Hogs and Pigs Report, there are signs of what lies ahead for pork prices in the coming year.
The United States has been killing too many market hogs, more of them from Canada this year than last. An estimated 500,000 more Canadian market hogs are expected to be slaughtered in the United States by year's end versus in 2002. A large contributing factor was Canada's BSE scare that occurred in May and has left the country with abundant meat supplies to deal with.
A liquidation period did occur in U.S. pork production, but it was short lived. That's not surprising in an increasingly consolidated industry where loan commitments, staffing and market contracts deem that you have to keep the barns full.
Chris Hurt, Purdue University Extension marketing specialist, points out that U.S. pork producers have faced losses 40 percent of the time from 1998 to 2003. Since 1998, he notes that live-hog prices have averaged only $38.56 per hundredweight, which is by far the lowest level for any six years during the post-inflation period of the early 1970s. In contrast, the six-year average price for the years ending in 1985, 1990, and 1995 were $46.88, $48.25, and $45.43, respectively.
"The obvious reason is the industrialization of the industry which may have
driven costs down," Hurt notes. "This 'Wal-marting' of the industry has collapsed profits to the thinnest of margins, which means that only those with large volumes can generate a reasonable annual family income."
Some market analysts project average live-hog prices for 2004 to be $35 to $38 per hundredweight. Hurt looks for a slightly better outcome, estimating 2004 prices at $39 to 41.
Hurt compares the hog-market scenario to other ag commodities, which have seen price gains this year.
"Cattle prices are at record highs. Corn, soybean and wheat prices are sharply higher than their past five-year averages. Broiler prices are more than 10 percent higher than last year's price, and egg prices are up more than 25 percent," he says. "Even lamb prices are nearly $20 per hundred higher than last year."
It's possible that hogs are just late getting to the bullish price parade, notes Hurt. This year has had its surprises, especially in the form of much larger Canadian hog imports after the May 20 BSE cow discovery in Canada. It now appears that the United States will import one-half million more market hogs from Canada than had been expected.
"There are positive signs that hogs may eventually make it to the bullish price parade," he noted. "While pork production will be up about 1 percent this year, live-hog prices also will end up 13 percent higher than in 2002. Higher production and higher prices is a positive sign that demand may actually have improved.