“The economic situation for pork producers is far better than a year ago today,” said Steve Meyer, president of Paragon Economics, during a World Pork Expo presentation on Thursday. Indeed, even the townspeople lending a hand at the Des Moines, Iowa, event acknowledged early on that “folks sure are in a better mood this year.”
Meyer estimates that in the last 2.5 years, the pork production sector lost $6 billion in equity. The profitability prospects are looking up. According to Iowa State University calculations, profits for farrow-to-finish operations in May averaged $40 per market hog; Meyer projects an average for the year at $20 per head. “Some producers could do better due to lower cost of production,” he added.
On average, Meyer looks for 2010 production costs to run $63 to $65 per hundredweight on a carcass basis. Even though “there’s a great corn crop in the field,” he said the new normal for corn will be $3 per bushel and higher. As for soybean meal, expect prices from $250 to $300 per ton.
Hog prices are better today than a year ago, and while “we could see a rally around the fourth of July; we may have seen the high for the year,” Meyer told the group. “We could go back into the $70s and $80s (carcass basis) yet.” For the fourth-quarter, he projects prices from $60s to $70s per hundredweight on a carcass basis.
As for the potential for production increases, “we’ve had three whole months of profits,” he added. “I’ve heard talk about sows being placed, but that talk will be around for a while.” He’s not denying that there won’t be temptations, but that there’s a lot of healing yet to occur. “Some producers did better with risk management in the past few years; some will be in the clear by year’s end,” Meyer noted.
There are facilities available, “so if producers want to expand they could quickly,” he said. The upcoming June Hogs and Pigs Report could show an increase in the breeding herd from March’s report, but remain below year-ago levels. “It could be the December or March (2011) report before we see expansion.”