January 27, 2010

US cattle and hog futures seen higher in 2010

An improved economy combined with smaller herds could boost US cattle and hog prices this year, according to analysts.

Front-month cattle futures <LCc1> at the Chicago Mercantile Exchange in 2010 on average are forecast to increase about 3% from a year earlier, with the biggest year-over-year gain likely in the second quarter.

While there is strong evidence that the recession has ended, there is yet to be any job growth, and the high unemployment levels are expected to continue keep a lid on beef demand, said an analyst.

A better economy is vital to forecasts for better prices as it could have consumers eating more at restaurants, and buying steaks and pork chops at supermarkets instead of lunch meat and hot dogs.

Cattle producers have incurred losses for more than a year and hog producers have been in the red for more than two years because of the recession, AH1N1 flu, and high feed prices.

It may be hard to increase beef prices in 2010 because it is more expensive than pork and chicken, and often is the first to suffer during a slow economy and last to recover.

Some analysts expect hog prices at times to rise as high as 90 cents per pound or more, but whether it will come to pass is dependent on economic recovery and an improvement in unemployment numbers.

Beef exports are expected to improve, but the rebound will not be as strong as for pork exports, said analyst Doug Harper.

Based on analysts estimated, lean hog futures in 2010 should average about 13% higher than in 2009 due to fewer hogs and better pork sales as the economy gains strength.

However, hog producers may continue to struggle much of the year.

Hog prices may not be high enough, said agricultural economist Ron Plain. On a live basis, US$52 per cwt is required for an annual average to breakeven, and the price will be lower than that for most of the year save for summer, he said.

Pressures on hog prices caused by weak economy and AH1N1 flu should ease in 2010. The economy is expected to continue improving and vaccines and a better understanding of the flu has kept AH1N1 out of the front page on newspapers.

Positive cash flows will return sometime in the second quarter and hog producers will see good profits in the summer, said Harper.

Demand is the key and there could be a strong rebound in pork exports compared to 2009, and domestic demand should be strong, Harper added.