Although the breeding herd is not dropping fast enough to bring profitability back to pork production, falling corn prices and prospects for lower soybean meal prices this fall are providing rays of hope for pork producers in the future, said Chris Hurt, Purdue University agricultural economist.
“USDA reported that on June 1he breeding herd was down about 3 percent, with producers’ farrowing intentions down 2 percent this summer and 2 percent this fall. But pork supplies will not change much even with the smaller breeding herd,” he said. “Although smaller litters would seem to signal similar reductions in pork supply, there will be more pigs per litter and somewhat higher marketing weights as corn prices are expected to be lower.”
As producers reduce sow numbers, they tend to cull the least productive sows, which leaves the most productive sows to produce more pigs per litter. For example, in the first half of 2009, the number of pigs per litter increased by 2.5 percent, compared with an average annual rate of just 0.8 percent over the past decade.
“Market weights will likely be higher in the coming 12 months as feed prices drop, reflecting the larger anticipated corn and soybean production. Pork production is expected to drop only about 1 percent over the coming 12 months. This small supply reduction will not boost prices back to profitability in 2009,” Hurt noted.
The loss of pork demand due to Type A H1N1 influenza has likely been the single most significant factor in preventing a spring pork price rally, he said. “It is most likely the loss of exports rather than loss of domestic demand that has caused the price weakness. The May trade data will be released on July 10 and will give the first picture of how much damage there was to export volumes. Unfortunately, about 5 percent of U.S. pork production may have been diverted from the foreign market to domestic consumers,” Hurt added.
H1N1 may have longer-lasting effects as flu will be in the news again this fall. Medical experts around the world caution against the second wave of H1N1, and the severity of the is of course yet to unfold. “Even though H1N1 in humans is not related to pork consumption, simply having flu in the news probably means there will be some continued loss of pork export demand,” he said.
Although producers couldn’t get a break in recent months,that luck may have shifted with summer weather more favorable and yield prospects rebounding. On April 24, when news of H1N1 broke, July corn futures were $3.86 per bushel.They reached a high of $4.50 in early June and now have dropped closer to $3.40 per bushel. July soybean meal was $318 per ton on April 24, reached $433, and has now moderated a bit toward $400 at this point, Hurt noted.
Estimated cost of production has come down with the recent sharp drop, especially in corn prices. “Estimated production costs are now near $48 per live hundredweight for this summer and will drop closer to $46 this fall. Given current feed price expectations based on futures markets, estimated costs in 2010 would average about $46 to $47 per live hundredweight,” Hurt said.
Hog prices are expected to average in the high $40s this summer and in the mid-$40s in the final quarter of 2009, he said. Prices should trade in the mid- to high $40s this winter, move into the low $50s for spring, and be in the low to mid-$50s in the summer of 2010, especially if the H1N1 impacts are negligible by that time, Hurt added.
These prices and costs would mean that producers would continue to operate with losses of about $5 to $7 per head for the second half of 2009, which is at least an improvement over an estimated loss of $20 per head in the first half of the year.
“Profitability could return by late winter 2010,” Hurt said. "Corn prices are lower right now than many had anticipated, and ownership of corn for the coming year’s feeding needs should be considered."
Soybean meal prices also should collapse as more abundant new crop supplies come in and as winter markets look to the restoration of the southern hemisphere crop. Waiting to cover meal needs seems wise at this point, Hurt added.
“Maybe the luck has shifted for pork prices as well. Lean hog futures have been so depressed that a sizable rally would not be out of the question. If producers feel that luck is finally shifting their way, then waiting for further recovery in pork prices seems prudent as well,” he concluded.
Source: Purdue University