There was little news in USDA’s December Hogs and Pigs Report that the pork complex hadn’t already considered. Analysts’ pre-report estimates hit the mark across the production categories presented in the report. (See “U.S. Breeding Herd and Hog Inventory Up Slightly” for a look at the numbers.)

“It was a sleepy report, which seems to be the case more and more,” notes Daniel Bluntzer, with Frontier Risk Management, Chicago, Ill. “It’s a non-event on the supply side.”

Despite some of the best profits in decades, U.S. pork producers are not expanding their herds. Sure, the 2006 hog supply will grow by 1 percent or so, but that’s simply keeps things at status quo. “With profits like we’ve seen in 2004 and 2005, if that had occurred in the 1980s or 1990s, we would have had expansion at 5 percent or more,” notes Bluntzer.

In 2005, producers’ profitability will come in around $40 per market hog; in 2004, it was $31 per head, notes John Nalivka, president of Sterling Marketing, Vale, Ore. Looking into 2006, he estimates breakeven costs to remain around $36 per hundredweight (live-weight basis). 

Low feed costs will help producers maintain profitability in the year ahead. But producers can expect hog prices to slip lower. “Hog prices in 2004 and 2005 were stronger than hog supplies would have suggested,” notes James Minert, Extension economist at KansasStateUniversity. “I think we’ll see an equilibrium in the supply and demand relationship.”

“We have to remember that the pork complex is much more inelastic then it used to be, and small changes in production mean a bigger impact on prices than they once did,” notes Bluntzer.

With that, he offers his price projections, based on the lean-hog index from the Chicago Mercantile Exchange.

2006                Price per Hundredweight

1st quarter        $62

2nd quarter       $68.50

3rd quarter        $66

4th quarter        $59

Year Average  $64

The 2006 year-end average compares to 2005’s estimate at $68.

Nalivka offers a look at live-hog price projections based on Western Corn Belt prices:

 

2006                 Price per Hundredweight

1st quarter        $48.25

2nd quarter       $51.75

3rd quarter        $47

4th quarter        $42.50

Year Average  $46.50

2005 Average $49.50