June 9, 2008

Record oil prices may alter US pork marketing

Record oil prices would impact hog processing operations and marketing, producers and livestock dealers on the sidelines at Pork Expo in Des Moines said.

Friday, crude oil prices on the New York Mercantile Exchange rallied to a record and settled at US$138.54, up US$10.75 a barrel.

Many US swine operations, especially those in the Midwest, are in areas with a pork processing plant located within one or two hours driving distance and other plants an additional hour or so away.

Producers may sell most of their hogs to the plant nearest their operation because it is the most convenient, but occasionally will sell to a more distant plant if the price quote is better.

However, with fuel prices moving ever higher and hog returns already at negative levels, the increased cost of transporting hogs to plants located further way could be prohibitive.

Producers are seeing their options dwindling as prices that processors are paying may not be able to offset increased freight charges.

Increased oil prices have also caused smaller producers to share trailer space with other producers through net-working. 

Plant buyers may also adjust their prices quotes depending upon where the hog operation is located. There could be wider regional price spreads at times when supplies are more readily available in one region than in another. The cost will be higher to move hogs from an area with surplus supplies into another that is deficit, they said.