Along with the June Hogs and Pigs Report, showing modest growth, USDA released a crop acreage report and grain stocks report that offered some relief to pork producers' production cost outlook. Of course, the market will continue to face volatility as the growing and harvest season progresses.
In a nutshell, the corn acreage is now estimated at 92.9 million acres -- the most since 1944 -- will essentially guarantee a record crop. The market reacted by dropping corn prices. However, it pushed soybean and soybean meal prices higher.
Still, it's a bit of a reprieve for pork production costs. Given this new scenario, Chris Hurt, Purdue University agricultural economist projects pork breakeven costs on a live-weight basis at $48 to $49 for the next 5 quarters, with fluctuations between the upper $40s and low $50s.
"That should give pork producers a bit more comfort today than they had faced," says Hurt.
He admits that it is a surprise that the U.S. pork industry hasn't had to adjust production more given the run up in corn prices since last fall. "If we have the crop that the market and acreage now suggests, we won't have to adjust much," he adds.
However, Hurt says ethanol is still the big question. Will growth slow, or will the lower corn prices entice more plants to be built? "There is still a long-term unknown and adjustment that the livestock industry will go through with the newly developing bio-fuel sector," he says.
Hurt and Ron Plain, University of Missouri agricultural economist, offer their hog price projections following USDA's June Hogs and Pigs Report release. Both are based on live-weight prices per hundredweight.
3rd quarter 2007 $50-$51 $48-$51
4th quarter 2007 $46-$47 $44-$47
1st quarter 2008 $53-$55 $46-$49
2nd quarter 2008 $53-$55 $48-$52
For a lean-carcass-weight estimate, Bob Brown, market analyst from Edmond, OK., offers the following:
3rd quarter 2007 $71
4th quarter 2007 $63
1st quarter 2008 $67
2nd quarter 2008 $77
He notes that the 2008 estimates may need to be adjusted downward by a $1 or $2.
So, the profitability scenario looks to tighter but continue for a while longer for most pork producers, especially if they spot opportunities to cover feed costs that they didn't secure previously.