U.S. pork producers should see another profitable year in 2012, says Steve Meyer, Paragon Economics. He projects a $12-per-pig profit for the average farrow-to-finish producer. Of course that means there are opportunities for greater profit as well as risks for less profit.
He points to four areas to keep an eye on as the year progresses.
1) Exports: 2011 set a record year for U.S. pork exports. If you look only at muscle cuts, exports snatched up 23 percent of the 2011 production; add in all pork products, and exports grow to 27 percent.
This year won’t likely set records, but export sales should remain stable. “If we could match 2011, I’d take it,” Meyer says. China and Hong Kong are fickle markets that always lend uncertainty to predicting export sales. Longer term, “the three free-trade agreements passed last year hold promise, but they will take many years to fully implement,” he adds.
One thing the United States does have going for it is the high U.S. herd health status. “It is clearly important to us,” Meyer says, “especially as foot-and-mouth disease surfaces, such as in Brazil and Taiwan.”
2) U.S. economics and its impact on meat demand. Consumer sentiment appears to be improving and, while unemployment is still high, it’s looking better as well.
Both beef and pork prices set records last year. Beef prices could be even higher this year, due to drought-induced herd culling. “Beef per capita availability is going to be down 6 percent this year,” Meyer notes. “I think $200 to $215 choice beef is in the offing.”
Chicken producers have cut broiler numbers, but kept weights high, thereby keeping production high. “They’re about at breakeven now,” Meyer notes. “Until we get chicken prices higher, it won’t help pork prices.”
Domestic pork demand was decent last year, better in the first half than in the last. “Americans ate less pork in 2011, but you’ve brought them less; you’re selling more overseas,” Meyer notes. The concern is that Americans will get used to less pork. The point is-- there is a difference between consumption and demand.
3) Feed prices: “High feed prices will be with us always,” Meyer says. “We are one bad crop away from astronomical feed prices.” He points out that federal tax credits are not why corn ethanol production climbed. “That was because of $100 oil,” Meyer says, “it was profitable.”
Now, world-wide corn supplies are the lowest ever; soybean supplies are in better shape. The key will be in 2012 acres and yields. “We will get more corn acres,” he says, and would not be surprised for corn to hit the 94 million-acre mark. In the United States, “corn conditions have improved, but drought concerns have spread. We’re going to need timely rains,” Meyer adds.
4) Hog and pork supplies, “there are not many years when this is No. 4 on the list,” Meyer says.
With such tight feed supplies, you either “get more efficient or you cut numbers. So far we’ve cut numbers,” he notes. While productivity has continued to improve, Danish producers, for example, are producing 11.3 pigs per litter. Meanwhile U.S. producers are averaging 10.2 pigs. “So, we can still improve efficiency,” Meyer says.
He looks for the continued replacement of old sows with more productive gilts, new finishing buildings to give pigs more room to grow and the continuation of heavy market weights. His real worry is whether through growth or productivity gains, 2013 market hog numbers climb by 1 percent to 2 percent more than this year’s predicted number (also likely to grow 1 percent to 2 percent from 2010.) The packing plant capacity isn’t there or in the works to handle the gains. “I’m very concerned about fall 2013,” Meyer says. “If you stuck a shovel in the ground today (for packing plant expansion) I don’t think you’d be ready before sometime in 2014.”