To say that pork production will be profitable in 2009 is being a bit optimistic, but U.S. producers should be moving closer to that coveted goal. Given that all three major categories in USDA's December Hogs & Pigs Report showed 2 percent reductions from a year ago (see U.S. Hog Inventory Down 2 Percent), at least the production trend is in the right direction to encourage more profitable scenarios. Pre-report estimates looked for 2009 pork production to be down 1.5 percent, but Dale Durcholz, senior livestock analyst with AgriVisor in Bloomington, Ill., expects production to be down closer to 3 percent.
"I'm optimistic about the summer, but see trouble on both ends of the year," said John Lawrence, Iowa State University agricultural economist. He pointed to a slow down in sow slaughter among the signs that fall 2009 hog slaughter could look a lot like this year. "I think things will get better about Easter time, but fourth-quarter (2009) hog slaughter could put us back in red ink," he said.
Lawrence advises that some numbers not in the report may be more important long-term. Export sales carried the pork market in 2008, and the question now is how strong they will be in 2009. The U.S. dollar is stronger not only against our major buyers' currency, but also against our pork competitors, which will make selling product overseas a challenge. Projections are for the first annual decline in export sales since 1993.
The domestic demand issue and competing meat supplies are key drivers. "Beef, chicken and turkey production are all headed down in 2009, and their prices will rise, that's a good sign for pork," Lawrence said. The recession and consumer spending decisions could work for or against pork. "Will consumers eat at home more? Will they trade between meats or will they trade down within meats and how will that affect carcass value," he wondered.
Finally, he advises watching Canada and U.S. sow slaughter numbers to keep an eye on the North American breeding herd and consequently production in the year ahead.
"Those are all unknowns that add uncertainty to our forecasts more than normal," he adds.
Another uncertainty remains grain prices. "We're looking at corn and soybean meal price lows that will stand up for a while," Durcholz said. But he looks for prices to rise by late winter or spring. "We have to see how the South American production picture unfolds. Grain supplies remain fairly tight globally, so it won't take much to upset the feed side of the equation," he adds.
Both economists look for producers to have more chances to cover variable costs in 2009. "We'll get closer to (hog) profitability, but I'm not sure we'll actually make it," Durcholz said.
Pointing to Iowa State University's Estimated Return calculations for farrow-to-finish producers, Lawrence reports that December's numbers reflect a $39-per-head loss. "That puts us at $21-per-head loss for the year. That's more severe than we expected," he said. In 2009, losses could drop to $6 per head, based on Dec. 30, market closings. But he reminds that "the fourth quarter could again see severe losses."
As for prices projections, the two economists offer the following based on Iowa/Southern Minnesota live-hog prices:
1st quarter 2nd quarter 3rd quarter 4th quarter
Lawrence $43-$46 $57-$61 $59-$63 $45-$48
Durcholz $42-$45 $58-$60 $56-$60 No Projection