The next 12 months appear to be near breakeven levels for most pork producers. However, feed price trends and export markets, especially with regard to China, may keep the uncertainties alive and the profitability tenuous.
"Somewhat surprisingly, the pork industry has not made supply adjustments in the face of higher feed prices," says Chris Hurt. In fact, pork producers have continued to increase the breeding herd, although modestly.
"There seems to be two explanations. The first is that producers of both beef and poultry were quicker to drop production with rising feed prices to the extent that total meat and poultry supplies have been lower this year. Second, hog producers were operating at a profitable margin when higher corn prices hit. Rather than trim the size of the herd, hog producers have largely absorbed the higher feed prices in the form of reduced margins."
So far this year, pork prices have been able to stay ahead of the higher feed prices without forcing adjustments to supplies. Production has been up 2 percent, yet farm-level prices have also been up as a result of better domestic pork demand.
"The improved domestic demand probably is related to less competition from other meat and poultry as those industries adjusted to higher feed prices," says Hurt. "As corn prices rose dramatically last fall and winter, the beef industry made some sharp adjustments."
Those adjustments included sending many fewer animals to feedlots and reducing market weights. As a result, the availability of beef per person was down nearly 2 percent this spring and summer.
"Adjustments to high corn prices also came quickly for the broiler sector where production per person was down about 3 percent from last fall through this summer," he notes. "Egg producers also adjusted quickly, dropping available supplies by about 2 percent from late 2006 until the present time."
Hurt says that while per capita pork production was up nearly 1 percent in the first half of 2007, declines in beef and broilers actually meant total meat and poultry supplies per capita were down about 1 percent. This resulted in higher farm prices in the first half of the year with finished steer prices up 10 percent, hogs up 8 percent, broilers up 26 percent, and eggs up 47 percent.
Source: Purdue University