Corn prices will remain high into next year, leaving the only question just how high? Now that USDA’s September Hogs & Pigs Report offers the first glimpse into 2012, what are the price and profitability prospects for pork producers?
USDA’s Sept. 1 estimate for the U.S. breeding herd at 5.81 million head is 1 percent higher than the same time a year ago and up slightly from June’s level. The market hog category at 60.8 million head is up 1 percent from 2010’s level and 3 percent higher than in June, which is high for a quarter-to-quarter gain. The same percentage increases apply to the category of all hogs and pigs, reporting a total of 66.6 million head on Sept. 1.
The trade could have easily digested those increases, even though they exceeded pre-report estimates by about 0.5 percent. It is the record-tying 10.1 pigs per litter average for the June/August farrowing period that is forcing analysts to adjust their 2012 outlook.
“We’re not bearish on pork, but we’re not as bullish as before the report,” says Altin Kalo, economist with Steiner Consulting, Manchester, N.H.
While corn prices have been a dark cloud over feed prices, there have been periods of profitability for pork producers, and 2012 will offer some as well. “We’ll still have very strong hog prices at times in 2012,” says Jim Robb, director, Livestock Marketing Information Center, Lakewood, Colo.
Today, hog prices on average are 10 percent higher than in 2010. “As we move into 2012, the year-to-year price increase will moderate significantly,” he adds. At the close of 2012, he expects hog prices to average 3 percent higher than this year’s level.
The two analysts do have price projections to offer.
Kalo uses the Iowa/Minnesota 51/52 percent lean-hog base (per hundredweight) as his basis:
4th Quarter, 2011 - $85
1st Quarter 2012 - $88
2nd Quarter 2012 - $97
3rd Quarter 2012 - $97
4th Quarter 2012 - $85
Robb uses the national weighted average, carcass base (per hundredweight) as his basis:
4th Quarter, 2011 - $82-$86
1st Quarter 2012 - $83-$88
2nd Quarter 2012 - $89-$95
3rd Quarter 2012 - $92-$98
4th Quarter 2012 - $82-$86
“After this report, I’m a bit more leery about third- and fourth-quarter prices because of the amount of supply that could come to the marketplace,” Robb says.
Even though breakeven projections are a moving target, Steve Meyer, president of Paragon Economics, offers an update based on Wednesday’s market. “Calculated today, breakeven is $86.04, per hundredweight carcass for the 12 months from October (2011) to September (2012).” Last week that number ranged from $88 to $92, he notes.
That kind of market volatility in corn and hogs will continue to cast uncertainty. “The summer grain markets were a lot different than what we’re seeing today,” says Dale Durcholz, senior analyst, AgriVisor Services, Bloomington, Ill. “We’ve taken a lot of starch out of the (corn) market; to a point where costs are more reasonable.” He wonders if that will adjust some producers’ plans down the road.
As of Sept. 1, producers said they planned to farrow 2.874 million litters during the September/November period, down 0.2 percent from 2010. For the December 2011/February 2012 period, farrowing intentions are reported at 2.857 million litters, up 0.5 percent from the same time a year earlier.
If productivity continues to clip along at the same impressive pace of 2 percent annual growth, as it has done over the past five years, producers will be putting more pork on the market without increasing farrowings or the size of their breeding herd.