US pork producers seen to regain profit after loss

Pork producers may be on the verge of returning to profitability after experiencing losses dating back to October 2007, according to economist Chris Hurt on the commodity market.

 

Hurt said hog prices are expected to rise seasonally in coming months and costs for feed continue to drop under the concerns of slowing world economic activity.

 

For the year, hog producers are expected to see an average live price of about US$47.50 per hundredweight, but costs of production are expected to drop to near US$45.50, providing a modest profit.

 

The crisis in the world economy is having negative impacts on pork demand, but is also helping to lower feed costs as corn and soymeal prices decline.

 

The current estimated 2009 corn price of US$3.36 is down from US$4.78 last year.

 

High protein meal price this year of US$261 per tonne would be down US$70 per tonne from 2008.

 

Estimated 2009 prices for corn and soymeal are based on the actual prices for the first two months and adjusted futures prices as of March 2, 2009.

 

Hog prices will not see much enhancement this year due to reductions in demand, particularly export demand.

 

The robust pace of pork export demand in 2008 is not going to be maintained as USDA anticipates a 14 percent drop.

 

Even though domestic pork production will drop one to two percent in 2009, fewer exports mean that pork supplies available for US consumers will rise modestly for the year, but with some differences by quarter.

 

Pork available per person is expected to rise modestly in the first quarter and be six percent higher in the second quarter.

 

The large increase in domestic supplies in the second quarter are because of large exports to China in the same quarter a year-ago, and more modest Chinese purchases in the second quarter 2009 will leave considerably larger amounts for US consumers.

 

Hog prices on a live weight basis are expected to average US$42.50 for 51 percent to 52 percent lean carcasses in the first quarter of 2009, and prices are expected to begin to rise immediately from the low US$40s currently, to near US$50 by May.

 

Given these hog price and costs estimates, pork producers are expected to return to profitability in April of this year.

 

Estimated losses of US$11 per head in the first quarter would give way to profits in the second through fourth quarter of US$12, US$15, and US$6, respectively.

 

For the entire year, profits would be about US$5 to US$6 per head.

 

According to the economist, smaller pork supplies into 2010 would seem to put a brighter face on profit prospects, but further loss of pork demand in a weakening economy could offset those gains.