With USDA projecting a record-high $6.70 per bushel average corn farm price for this fall’s crop, U.S. pork producers’ margins may come under pressure in 2012, according to Ron Plain, University of Missouri agricultural economist.
The expected higher corn price translates into high cost of gain, and producers will likely need a live weight price above $60 per hundredweight next year to breakeven, says Plain.
With high corn prices, soybean and soybean meal prices inevitably rise also, according to Plain. “If we have record corn prices, we will likely see record soybean meal prices, which mean record production costs for hog operations.” U.S. soybean production this year is expected to be down 8 percent from last year.
“If we average $6.70 per bushel corn price for the coming year, as USDA predicts, we will need around 60 or 62 cents per pound live weight price to cover production costs for hogs, and maybe a bit higher,” says Plain.
In its October Crop Report, USDA trimmed acres planted on corn slightly but left the per acre yield unchanged which means total production will be down a bit from what they had anticipated, says Plain. “There’s a chance that as harvest continues, we might see per acre yield increase a bit as we wrap up harvest, but it likely will not be a big change.”
According to Accuweather.com agricultural meteorologist Dale Mohler, "Persistent wet weather this spring, followed by extreme and widespread heat during much of July is mostly to blame for the lower yields.” Wet weather during May and June in a large part of the northern Plains and Midwest resulted in a substantial number of acres not being planted or planted late.
High prices this fall may lead to rationing among some corn users. Because of the expected higher corn prices, some experts feel that China may not import as much corn as prior years. In addition, lawmakers recently introduced a bill titled the Renewable Fuel Standard Flexibility Act of 2011. If passed, the bill would give pork producers a safety valve by reducing the ethanol mandate by 25% when corn’s stocks-to-use ratio is projected to be between 5% and 5.99% and decreasing it by 50% when the ratio is below 5%.
The USDA projects 2011/2012 corn stocks-to-use ratio at 5.3%. The ratio is down from 6.9% for 2010/2011 and 13.1% for 2009/2010.
Time will tell how the market will sort it all out. “It’s too soon to tell whether pork producers will make a profit in 2012,” says Plain.