Pork producers may face some of the worst losses in ten years this fall when a wall of hogs, fed high-priced feed, enters the market. The industry lost millions of dollars ten years ago when prices for hogs dropped sharply, hitting a 50-year low of $10 per 100 lbs.
It is unlikely hog prices will drop to $10 this fall, but big losses are still expected. Prices for corn and soybean meal are so high that if hogs sell from $40 to $45 per 100 lbs this fall, as expected, losses will be huge, because it will cost $55 to $60 per 100 lbs to produce them. On a 260-pound hog, that equates to a loss of about $40 per head.
"The magnitude of producer losses in the fourth quarter, due to high corn, could approach levels of 1998," said Jim Robb, agricultural economist at the Livestock Marketing Information Center. "There is a 50-50 chance we could lose that amount of money."
It is assumed these big losses will force some hog producers out of business and others to reduce production. As a result, economists and Chicago hog traders believe that fewer hogs will mean much higher prices in 2009, reports Reuters.
That is largely why the June 2009 hog contract 2LHM9 at the Chicago Mercantile Exchange has been setting records. On Wednesday, it peaked at 100.25 cents per lb on a carcass basis, the highest ever for any CME hog contract. The 100.25 cents is equivalent to $74 per 100 lbs on a live-hog basis.
"I think hog prices will increase after the first of the year, which they typically do, but it is the costs that are just outrunning cash," said John Lawrence, agricultural economist at Iowa State University.
Because of strong demand for corn, a smaller crop this year, and losses due to flooding, corn prices are expected to stay high for much of 2009.