January 6, 2011

US hog, pork prices to hit record highs in 2011

Hog and pork prices in the US are expected to reach record highs in 2011, due to a combination of high demand, high feed costs, and a smaller herd. 

"Foreign buyers are expected to elevate pork exports by 10%. Pork exports are expected to represent a record 21% of domestic production. The combination of modestly lower production and higher exports means that the available supply per person in the US will drop by nearly 3% in 2011. This will be the foundation for record retail pork prices as there will be less pork available at a time when US consumers' economic conditions are improving," said Chris Hurt, a Purdue University Extension economist.

Live hog prices in 2011 are expected to exceed US$60 per live hundredweight, or more than US$80 on a lean basis. "The stimulus will come from smaller per capita US supplies, from much stronger demand driven by recovering US and world economies, and by the inflationary policy of the US Federal Reserve," Hurt said.

How high can hog prices go in 2011? "Historically US$90 lean prices, or about US$67 live, were the top of futures markets," Hurt said.

Some current futures prices now exceed US$90 for the spring and summer delivery contracts and raise the possibility of them reaching US$100, or US$75 live.

"Some may argue that there is no historic precedence for prices that high. But, there's no historic base for costs of production this high as well. So, a new era of high costs probably means there will eventually be a new era of record high hog and pork prices," Hurt said.

Current forecasts are for hog prices to average more than US$60 live for 2011. The previous record annual high was about US$55.50 in 1982. By quarter, those prices are expected to average in the high-US$50s in the first quarter, move toward the mid-US$60s for the second and third quarters, and average in the mid-US$50s in the final quarter.

"Record high hog prices would seem to suggest great profit prospects for pork producers in 2011. Of course that's not the case as feed costs aim toward a break-even year with costs estimated to be slightly over US$60 as well," Hurt said.

Hog prices are expected to rise sharply in 2011 from the current low-$50s and move into the high-US$50s by late February and March. At this point, the industry will be back to near break-even prices. "Prices are expected to march toward the high-US$60s in late May and June. The spring and summer quarters are expected to provide profitable production before sliding back to break-evens in the mid-US$50s for the last quarter of the year," Hurt said.

Hurt said that the pork industry has been downsizing in response to high feed prices and will drop modestly in 2011. In December of 2007, the US breeding herd stood at 6.233 million head. Today, the herd is at 5.778 million head or a 7% reduction.