Pork producers should be "conservative and defensive" this year even though profitability may be on the horizon, says Chris Hurt, Purdue University Extension marketing specialist. "The extreme uncertainty of the moment implies that pork producers, like all of agriculture, should be conservative and defensive. Perhaps management decisions in 2009 should be focused on increasing odds of survival, rather than looking for big opportunities."
Hurt's comments came as he reviewed the financial outlook for pork producers, who he believes may be on the verge of returning to profitability after experiencing losses dating back to October 2007.
"Hog prices are expected to rise seasonally in coming months and feed costs continue to drop in response to concerns of slowing world economic activity," he notes. For the year, Hurt points to average live-hog price around $47.50 per hundredweight, but expected production costs near $45.50, which would provide a modest profit.
While the world economic crisis is negatively impacting pork demand, it's also helping to lower feed costs as corn and soybean meal prices decline. In fact, yearly average hog prices had very little variation in 2006, 2007, 2008 and now in 2009, when average prices were between $47 and $48, Hurt notes.
"Wild fluctuations in production costs are the primary reason for an estimated profit of $27 per head in 2006 and an estimated loss of $17 per head in 2008," he says. "Changing corn and soybean meal prices have been driving returns."
Hurt predicts that hog prices will not see much enhancement this year due to reductions in demand, particularly export demand. The robust pace of export demand in 2008 is will not be maintained as USDA anticipates a 14 percent drop.
"Even though domestic pork production will drop 1 percent to 2 percent this year, fewer exports mean that pork supplies available to U.S. consumers will rise modestly for the year, but with some differences by quarter," he adds. Pork available per person is expected to rise modestly in the first quarter and be 6 percent higher in the second quarter.
Source: Purdue University