As some corn futures for summer 2009 closed above the $8-mark on Friday, USDA's June Hogs & Pigs Report also showed there will be plenty of hogs for many months to come. No question, pork producers' breakevens will continue to weigh heavily.
"No one is going to make money (in hogs) for months and months to come," says Ron Plain, University of Missouri agricultural economist. "The cost of production is going to keep going up very fast."
However, the futures are much more optimistic than hog numbers would suggest. With that in mind, Plain suggests that producers look to the futures market to price hogs into 2009. "There is opportunity there; the futures are offering $20 than my price predictions," he notes. (See Hog Numbers Exceed Trade Expectations; Price Pressure Likely).
He also advises producers to look for alternative feed options, citing that prices for distillers dried grains with soluables are making that product a more logical option these days, and wheat may be worth considering as well.
"Some things have gone right," he points to red-hot U.S. pork exports as preventing loses from being even worse. On the domestic demand side, "given the economic conditions in the United States, the hope is that pork will hold its own."
Darrell Mark, University of Nebraska Extension livestock marketing specialist, points out that beef will likely suffer more in terms of demand as its prices will remain higher. "We may see some switching from beef to pork," he says.
The couple "friendly" numbers in USDA's June pig crop report are found in the farrowing intentions. For the June/August period, producers intend to farrow 2 percent fewer sows than in 2007; for September/November, intentions show a 4 percent drop from year-ago levels. Both numbers were lower than the pre-report trade estimates. (See U.S. Hog Inventory up 6 Percent).
"Looking at the breeding herd number is not as good as looking at farrowing intentions to get a sense of the future," says Plain. "I believe there is a larger breeding herd out there than USDA is reporting.
Still, the harsh reality remains that hard choices lie ahead. "A producer has to ask whether he has deep enough pockets to weather this period and when it might end," says Plain. While it's little consolation, he points out that pork producers in other parts of the world are hurting too. "They're losing lots of money and cutting back too."
So, will the U.S. pork industry downsize, and will there be fewer producers? "Yes, that's what's got to happen," says Plain. "Livestock prices will have to raise in order to get back to profitable levels."
And, that's not isolated to the hog sector, adds Mark. "It's an all animal agriculture issue."