When it comes to making financial projections about the pork industry, analysts are reluctant to say anything optimistic.
The problem is this: optimism that hog margins might clear zero tend to give pork producers hope, leading them to stay in business and limiting the sow herd reduction needed to create those positive margins, says Meatingplace.com
BMO Capital Markets analyst Kenneth Zaslow described how Informa Economics forecasted pork prospects at its recent annual conference. In a note to investors, Zaslow called the market research firm's hog production outlook "the most controversial of Informa's presentations."
Reports on the outlook for the industry are filled with caveats and qualifiers. Informa expects an additional 250,000 head reduction in the hog breeding herd next year. However, the firm also indicated a reduction of 500,000 would be required for sustainable positive margins.
"Informa's concern largely supported our view that while the liquidation is taking place, we remain fearful that the liquidation is not enough to elevate hog prices to levels that cover the increasingly higher feed costs, unless domestic and export demand rebound strongly," Zaslow concluded.