With analysts forecasting higher grain costs for 2011, pork producers’ profit in the New Year may take a substantial hit. Risk management will play a key role in preserving profitability in the higher input cost scenario.
In a conference held after Monday’s release of USDA’s quarterly Hogs and Pigs report, industry analysts commented on the report’s findings. The conference was sponsored by the National Pork Board’s pork checkoff.
With input costs heading higher, risk management on feed is a key ingredient in managing profitability in 2011, said the analysts. There is lots of room for caution.
Breakeven prices in 2011 will head up along with feed prices and may average $74 to $75 per hundredweight carcass, which would cut producers’ profit to around $10 per pig, said John Nalivka, Sterling Marketing, Vale, Ore. Nalivka estimates the profit per pig in 2010 was around $22.
Protection against rising input prices is a must, according to the analysts. “As far as risk management is concerned, producers have to start with the grain side because that’s where the biggest threat to profitability is,” said Joe Kerns, International Agribusiness Group, Ames, Iowa.
Kerns doesn’t yet see any willingness to ration or reduce consumption among the dominant users of corn including ethanol, export and the poultry and livestock industries. “Somebody needs to cry ‘Uncle!’ in this corn consumption dynamic and I don’t see who that is right now.” All those things add up to a risk profile for corn which is the first thing producers will need to address with risk management.
The analysts also shared their hog price projections for 2011:
2011 Hog Price Projections
(per hundredweight carcass)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Kerns $75 $88 to $90 $90 $79.50
Skold* $74 $84 $86 $77
Nalivka $73 $84 $84 $73
*Karl Skold, Westside Economics, Omaha, Neb.