Last year a decent year for U.S. pork production as exports kept prices high and returned a profit even though corn prices also set a record high. “Estimated profits above all costs in 2011 were around $15 per head,” says Chris Hurt, Purdue University Extension economist. He expects 2012 margins to drop to about $10 per head.
Part of the reason that 2011 will be another profitable year is that producers remain cautious about the future. While feed prices drive the greatest uncertainty, questions surrounding U.S. and European economies are an important part of producers’ caution. Another contributing factor is the memory of large losses experienced in 2008 and 2009.
This is all reflected in the modest expansion of the breeding herd as reported by USDA in late December. “Limited expansion would seem to be the prudent path until more is known about 2012 (corn) crop yields and feed prices. This suggests no expansion of the breeding herd until mid-summer 2012,” Hurt notes.
Pork production for the year is expected to increase 2 percent to 2.5 percent from 2011 levels. However, most of that increase is due to productivity gains, particularly in pigs per litter rather than from more farrowings. U.S. pork exports are expected to remain strong, which means the per capita pork availability in the United States will only increase by about 1 percent, Hurt says.
“Pork demand also will be supported by smaller per capita supplies of beef and poultry in 2012,” he notes. He looks for hog prices to be down only modestly from 2011 levels, and input costs to be similar. “This means another year of profitability is likely.”
In USDA’s December pig crop report, the breeding herd was up only 0.4 percent; hog numbers were up about 2 percent for hogs coming to market through next May. Winter farrowings, which represent next summer’s hog supply, were up about 1 percent from the previous year.
“With the number of pigs per litter increasing about 2 percent, slaughter numbers will be up near 3 percent next summer. Fall hog supplies will be drawn from the spring 2012 farrowings where producer’s intentions were down almost 1 percent. If so, this means fall 2012 hog slaughter would only be up 1 percent,” he says.
It’s important that fall slaughter does not creep beyond the 2 percent mark as packing plant capacity would be stretched to the limit, and that never bodes well for hog prices.
Demand should remain favorable for pork in 2012. The U.S. economy is expected to continue to show signs of modest improvement. Exports are expected to continue at a record pace, representing 22 percent of production, Hurt points out.
USDA is forecasting near record exports for U.S. beef and broilers as well. “The amount of pork available per person in the United States is expected to rise only 1 percent in 2012. However, competitive meat supplies will be lower. Beef availability will be down about 6 percent, with poultry supplies per person down about 3 percent,” he says.
Live hog prices averaged about $66 per hundredweight in 2011. Hurt forecasts 2012 prices to average about $65. First-quarter prices are expected to average in the very low $60s and move to the higher $60s for the second and third quarters before moderating to near $60 in fourth-quarter 2012.
Hurt looks for production costs to be similar to 2011. On average, U.S. farmers received $6 per bushel for corn in 2011. Futures are suggesting 2012’s average price will be about 20 cents higher. High-protein soybean meal at Decatur, Ill., averaged $335 per ton in 2011, and current futures markets expect that to be down about $20 this year, he notes.
“The strongest profits are expected in the second and third quarters with seasonally strong hog prices. Some profit is expected in the final quarter of 2012 due to lower corn prices if U.S. corn and soybean yields return to near normal,” Hurt adds.
Corn and soybean inventories remain tight. Globally if yields reach more “normal” levels, it could help recover supplies and temper feed prices. However, any yield reductions in major growing areas this year could again push feed costs higher.
Given the hog and soybean meal price outlook for 2012, the breakeven corn price is about $6.75 to $7 per bushel. If corn prices stay at or below this area, pork producers could cover all costs or make a profit. If prices exceed this area, 2012 could shift toward a loss, he says.
“These uncertainties suggest producers should continue to wait to expand until 2012 yields in the United States are better assured,” Hurt says.