June 9, 2008

 

US hog producer losses could extend beyond a year

 

Record high feed costs and hog slaughter rates could further extend losses of US swine producers for most of the next 15 months, University of Missouri agricultural economist, Glenn Grimes, said.

 

Wholesale pork values in early April were nearly US$9 below a year ago. However, aided by record large exports and stronger domestic demand, the cutout rebounded sharply, gaining by approximately 50 percent to move about US$5 above a year ago by mid-May.

 

Yet while US hog prices rallied sharply, they did not rise enough to cover costs for all producers, Grimes said.

 

Cash hog prices have declined some since mid-May while feed costs have remained high.

 

US corn prices have climbed by about 150 percent in the past 12 months while soymeal is about 100 percent in the same period.

 

Grimes said corn prices averaged US$2.37 per bushel in the 34 years from 1973 through 2006.

 

Prices have stair-stepped up to new plateaus about every 30 to 35 years since the early 1900s. The increase from the 1940s to the 1970s was 62 percent, and the next step up was 88 percent. Grimes said using an average of these gains at 75 percent would take corn prices to US$4.15 a bushel for the next cycle.

 

However, prices have far exceeded that projection already on expanded demand from the ethanol industry and a growing world economy.

 

Corn futures prices Thursday (June 5, 2008) climbed to a record high of US$6.43 3/4 amid concerns of extended wet weather.

 

The cost of producing a pig has never been higher, according to calculations made by John Lawrence at Iowa State University.

 

The figures show a projected breakeven cost of about US$56 per hundredweight on a live basis for 2008, exceeding the previous high of just over US$54 in 1996.

 

Grimes forecasts US commercial hog slaughter for 2008 to be up 7.5 percent from last year. He foresees fourth quarter slaughter to be a record-large 30.8 million head, up 1.3 percent from a year ago.

 

Some liquidation of the herd has occurred during the spring, but it did not occur soon enough to pull down fourth quarter slaughter, he said.

 

The year-on-year reduction in slaughter will not occur until the first half of 2009, Grimes explained.

 

Producers have reduced the US breeding herd by about 2 percent as of June 1. Grimes added that in order to return to profitability on an annual basis, the industry will have to reduce the herd by a total of 6 percent to 10 percent.

 

Price forecasts for the second quarter based on Iowa/southern Minnesota dressed quotes, are from US$71 to US$74.

 

Grimes projects US$66 to US$70 prices for the July-September period, and US$56 to US$60 in the final quarter.

 

These would put the yearly average at US$61 to US$65, compared with an actual average price of US$61.91 in 2007 and US$62.54 in 2006.

 

Grimes recommends that producers utilize hog futures to lock in prices and limit their losses this fall and winter.