Higher Hog Prices Likely To Encourage Increased Pork Production Next Year

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Lighter than expected weekly hog slaughters in April prompted USDA to adjust slaughter forecasts downward for the balance of 2010. Smaller slaughter numbers are likely to be partly offset by higher dressed weights than expected earlier, resulting from continued strong hog prices, moderate feed costs, and favorable spring weather conditions in major hog producing States. Pork production in 2010 is expected to be 22.2 billion pounds, 3.3 percent lower than last year.

Fewer available slaughter animals, however, is one of the more important reasons that hog prices remain significantly above year-ago levels. Moreover, higher hog prices are likely to induce higher farrowings late in 2010 and into 2011, which in turn points to year-over-year higher pork production in 2011. Commercial pork
production in 2011 is expected to be 22.7 billion pounds, about 2 percent more than this year’s production forecast.

Hog price forecasts for the balance of 2010 reflect smaller hog numbers and recovering consumer demand for U.S. pork products. Second-quarter prices for live equivalent 51-52 percent lean hogs are expected to be $60-$62 per cwt. Expectations for the third quarter of this year are for hog prices to average $59-$63 per cwt, before declining to $50-$54 per cwt in the fourth quarter. The expected price range for 2010—$55-$57 per cwt—exceeds that of 2009 by more than 36 percent, and is the highest since 1996. Prices for the balance of 2010 (second quarter through fourth quarter) also imply positive producer returns, given current USDA price forecasts for corn and high protein-soybean meal, the two major hog feed components.

Average hog prices in 2011 are likely to be lower than for this year due to higher pork production in quarters two to four. Next year’s prices of live equivalent 51-52 percent lean hogs are expected to be $53-$57 per cwt, almost 2 percent below price forecasts for 2010, but still well above most hog producers’ breakeven point, given USDA feed input prices.

The higher hog prices that relatively tight hog supplies bring about are expected to combine with recovering consumer demand to result in higher retail pork prices both in this year and in 2011. Second- quarter 2010 retail pork prices should average in the mid-$2.90’s per pound, and climb to about $3.00 per pound in the second half of this year. Retail prices next year are expected to average just over $3.00 per pound, a year-over-year increase of about 2.7 percent over retail prices
this year.

Source: ERS/USDA


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