Black ink will continue to flow for U.S. pork producers, at least through the third quarter, according to economists responding to USDA's March Hogs and Pigs Report. While pork supplies will be on the rise, the factors that will have the most impact on profitability are corn prices and pressure from competing meats.
U.S. producers have seen a remarkable 26 consecutive months of black ink. "The record is 33 months, beginning in December 1976 to August 1979," notes John Lawrence, Iowa State University agricultural economist. "The best previous returns, and the on that's most remembered was a stretch from 1990 to 1991."
While the March Hogs and Pigs Report showed continued modest growth in pork production-- to the tune of about 1 percent from 2005 levels-- well within the trade's pre-report estimates, another USDA report shook things up on Friday. The March Planting Intentions Report showed a 5 percent decline in projected corn acreage.
Now, there is still time for that to change, and marketwatchers expect the market to provide incentives-- higher prices-- to get that done.
If corn acreage remains at the tight levels noted in the March Planting Intentions Report, "Carryout stocks for corn would drop from 2.4 billion bushels now, to 1.4 billion bushels," according to Chris Hurt, Purdue University agricultural economist's calculations. "There would be no room for any weather challenges to the crop." He says it could add another $1 to $2 per hundredweight on pork producers' breakeven.
Given that, Lawrence says some level of price protection on corn supplies is warranted for pork producers. But he sees more volatility in corn prices not just this year but "all points forward." Among the other influencing factors is the growing ethanol production. "It's a new world on the corn marketing side," says Lawrence. "There will be changes in the basis too. Producers will need to take a lesson in corn marketing, because it's going to be very different."
The two economists offer the following price projections based on the live-hog market (Hurt's are based on 51/52 percent lean)
(Price per hundredweight)
2nd Quarter $44-$47 $45.50
3rd Quarter $44-$47 $44.70
4th Quarter $39-$42 $41.50
1st Quarter 2007 $38-$41 $40.00