USDA's December Hogs and Pigs Report released Thursday showed year-over-year increases across all survey categories. What's worse, the numbers are higher than analysts' pre-report estimates, which means the bears will come out to play in the market.
While U.S. pork producers have enjoyed some decent returns for about four years now, the next year "is going to be ugly", says John Lawrence, Iowa State University agricultural economist. The combination of rising feed costs and abundant hog numbers will both put significant pressure on producers' breakevens.
In putting pencil to paper, Lawrence used $4-per-bushel corn and $300 per ton soybean meal as a working hypothesis and came up with a $70 carcass-price breakeven price. "I have red ink for all of 2008, except perhaps for a few weeks in the summer," he says.
Pork producers have already faced declining margins as rising corn prices and a heavy market hog runs began to materialize in this year's fourth quarter. Lawrence had already pegged per-head production losses at $27 in November, and $25 in December.
Analysts look for slaughter runs to remain high heading into the new year. Just how long and how high is uncertain. "It could be well into February before we see weekly slaughter get back to 2.2 million or 2.1 million," says Lawrence.
He points to March/May farrowing intentions, which are about equal to 2007 levels, as a spot of hope. Pigs in those litters would head to market in the fourth quarter of 2008. "That would be slow down in production and it would be a faster than normal response to losses," notes Lawrence. "It's nothing to cheer about, but it's a glimmer of hope."
Lawrence, along with Victor Aideyan, senior risk management consultant with Farms.com, and Len Steiner, president Steiner Consulting Group, offered their hog price projections for 2008. All are based on Iowa/Southern Minnesota carcass-weight prices.
Quarter: Lawrence Aideyan Steiner
1st $55-$58 $55.37 $59
2nd $65-$68 $62.98 $70
3rd $64-$67 $62.96 $71
4th $55-$58 $59.96 $65