June 9, 2011

US hog producers may cull herds on surging feed costs

US hog producers may start to cull herds as the faltering economic recovery curbs pork demand and tightening corn inventories boost livestock-feed prices, curbing animal supplies and increasing costs for meatpackers.

Since May 16, wholesale pork has dropped 9.6% from the highest since at least October 1997, while corn, the main ingredient in animal feed, gained 9.5%. Hog producers are facing record production costs based on current futures prices, said Steve Meyer, president of Paragon Economics.

"I do not think there is any stomach in the industry for expansion, and there may be some contraction" said Ron Prestage, whose family business, Prestage Farms, has 170,000 sows in four states. Hog futures may gain as much as 9.5% to US$1 a pound by the end of August or early September without disruption to export demand, he said.

Hog producers without risk-management plans may lose US$8 a head in the fourth quarter and US$10 a head in the first quarter of next year, said Ron Plain, a livestock economist at the University of Missouri in Columbia. The breeding herd may start to shrink as soon as September, and that will reduce slaughter rates in the third quarter of 2012, he said.

"Fewer hogs should mean higher hog prices, and my forecast would be that this isn't a wonderful corn crop, and we will start cutting the sow herd this fall and help out hog prices," said Plain, who has studied the industry for three decades.

He declined to give a price projection. Meat demand may ebb this year if the economy stumbles, Plain said.