As market analysts talk about the March Hogs & Pigs Report, as well as future hog production and price estimates, they preface everything with "it depends on what happens with the corn crop, corn prices and corn supplies." Indeed, those factors will dictate the short- and long-term picture for pork production.
The margins are tightening, but pork producers' profit streak has continued, now at 37 straight months -- the March numbers are not yet complete.
"The hog side will continue to see profits through the spring," says James Minert, livestock-marketing specialist at Kansas State University. "Summer will depend on corn crop and yield indicators and potential price rallies." In all, he doesn't expect black ink to change over to red until maybe the fourth quarter.
The driver in that, however, is a producer's risk-management tactics. Minert points to USDA's crop acreage report, also released on Friday, which showed substantially more acres headed for corn than the trade expected. According to producers' planting intentions, 90.5 million acres will be planted to corn, that's 15.5 percent more than in 2006, and 2 to 2.5 million acres more than the trade expected.
The futures market reacted sharply on Friday, ending the day limit down. More down side is likely next week. For pork producers that means there's an opportunity to manage a big risk and secure corn prices.
The other side of the risk-management coin, however, is the need to secure hog prices to ensure profitable levels, notes Darrell Mark, livestock-marketing specialist at the University of Nebraska. Overall, he doesn't see much weakness ahead for livestock prices, including hogs. "It should shape up to be a decent year for pork producers."
Analysts seemed reluctant to offer price projections following USDA's report, again, the corn scenario weighing on those commitments. But Minert and Mark look for lean-hog prices in the $60s and $70s for the summer months.
Dan Vaught, livestock analyst with A.G. Edwards in St. Louis, says in the short-run, the report is supportive to hog prices. He looks for hog slaughter to slow up a bit from mid-April through May. He pegs lean-hog prices at $75 to $80 for May/June, $72 to $76 for July/August, and $65 to $66 in October to December.
The analysts don't believe market-hog weights will decline much in response to corn prices. For the year, analysts expect a pork production increase of about 2 percent.