Pork producers will see more red ink in the near future predicts Ron Plain, University of Missouri agricultural economist. “However, I think producers will make some pretty good money in the summer months of 2009 which I think will be a much better year than 2008," he says.” The economist predicts 2010 will be profitable for producers. The comments were delivered at a meeting of pork producers held Wednesday in Columbia, Mo.
“I’m estimating a breakeven price, on a live weight basis, will be somewhere around 55 cents per pound for slaughter hogs next year,” says Plain. The economist points to the nation’s biofuel policy as the driver of feed costs. “The price of ethanol determines the price of corn,” he says. “Until we change our biofuels policy, this is what will drive corn prices and drive the cost of raising pigs.”
Plain also shared his 2009 price target with the audience. “The economy just keeps getting worse and I keep lowering my forecast for 2009,” he says. Plain estimates an average negotiated live base price equivalent for 2009 at $51 to $55 per hundredweight.
About 116.8 million hogs will be slaughtered in 2008 Plain predicts. He sees a slight reduction in the 2009 slaughtered figure at about 113.7 million head.
Plain expanded on factors affecting pork production. For this year, about one third of all the corn raised in the United States will be used for ethanol production. For each bushel of corn that goes to ethanol production, about 17 pounds of distillers’ dried grains with solubles are produced, Plain says. “Unfortunately, DDGS is not cheap,” he adds.
Corn and DDGS prices track pretty closely together. However, the economist attributes cattle feeding requirements for higher DDGS prices seen in the winter. “As a result, DDGS tends to be a very good buy in the summer months,” Plain says.
The economist points to rapidly falling commodity prices as an indicator that the United States is in recession. Since early July, crude oil is down 55 percent, corn is down 51 percent, soybeans are down 48 percent and hog prices are down 20 percent. “The one thing that is more valuable is the greenback” says Plain.
Plain relates oil prices to recessions experienced in the past. “Each of the past four recessions was preceded by a spike in crude oil prices,” says Plain “Officially, you need two consecutive quarters of negative growth but almost everybody thinks we are currently in the early stage of a recession.”
“Demand for pork has more to do with prices than hog numbers,” Plain contends. Americans consume about 48 pounds of pork per person per year which hasn’t changed much in 50 years. “Export demand has been fabulous this year,” he adds. “As goes the exchange rate, so goes export demand.”
Slaughter weights for 2008 have been down slightly. However, Plain predicts that carcass slaughter weights for 2009 will be higher. In addition, the economist predicts slaughter weights will continue to increase by approximately 1 pound per year. “We’re producing carcasses about 50 pounds heavier than 50 years ago and 50 years from now look for 50 pounds heavier than current weights," he says. “I contend that’s the rate of genetic progress.”