Pork producers are already facing challenging times, and that's not likely to change very soon, according to economic forecasts delivered last week at the World Pork Expo. Economists Steve Meyer, Paragon Economics, and Glenn Grimes, University of Missouri, says there's no "quick end to the losses."
Pork production will be in a red-ink scenario through at least another 18 months, maybe longer. “I can’t see working out of this until 2010,” says Meyer.
Skyrocketing oil prices is a leading culprit in driving pork producers’ losses as rising corn prices are directly tied to oil. Meyer recommends producers do all they can to reduce expenses and manage risk because corn prices and soybean prices will likely continue to rise. “Corn planting has gone very slow this spring with emergence being the slowest on record,” Meyer says. “It’s not a pretty sight.” Add in the recent wet weather and flooding that significant sections of Iowa, Illinois and Indiana are facing, and the corn crop scenario is getting increasingly bleak. The calendar also is working against the corn crop as time will soon run out for replanting.
Meyer looks for corn prices to run between $4.50 and $8.50 per bushel. Of course, soybean meal is the other part of the cost equation, and that's likely to remain high as well.
Surviving the next 12 to 15 months will be a significant challenge for producers. The critical question is, “How can I minimize losses,” says Grimes. “It’ almost a given that feed prices will continue to rise.” He does point out that the futures market is offering producers decent risk management opportunities.
Grimes is actually concerned that futures market opportunities and a red-hot pork exports could delay much-needed breeding herd reductions. Grimes and Meyer agree that a 6 percent to 12 percent reduction in the North American breeding herd is needed to re-establish long-term profitability. Grimes expects the breeding herd to be down 2 percent in USDA's June Hogs and Pigs Report.
Meyer points out that a poor corn crop this summer would be disastrous. “We will not run out of grain, but prices could be very high,” he says. "It's likely that we could see spot shortages."
Producers are going to have to learn some new things, Meyer says. “You’re going to have to be more nimble than in the past to take advantage of buying opportunities.” He suggests producers put a lid on feed costs by using call options. He also recommends building a strategic corn reserve.