US hog farmers may be back in the red by late 2011

 

 

Hog farmers in the US, who have only just emerged from their worst downturn in a generation, may be back in the red by the end of next year if they go through with plans to raise output.

 

Producers are on track for a profit of US$21 per animal in 2010, recouping some of the US$41 lost over the previous two years, when first soaring feed costs and then global recession tipped many into bankruptcy Purdue University economist Chris Hurt said.

 

However, that profit looks set to halve in 2011, and disappear by the final quarter of the year, as the impact of herd rebuilding feeds through into higher pork supplies.

 

Hurt said that early projections for 2011 are for US$11 per head of profits, but all coming in the first three quarters.

 

Farmers will be tempted into raising production by high prices - which averaged US$63 a hundredweight for live hogs last month, beating the US$60 mark for only the 13th time in 40 years at a time when they need to repay debts run up during the sector crisis.

Hurt noted that losses eroded much of the equity of many producers, so they and their lenders want a period of profits to stabilise their financial position, adding that the "extraordinary profits" enabled by the strong hog market.

 

While a USDA report on Friday (June 25) implied a 4% fall in pork supplies in the last half of this year, a hangover from deep herd cuts made during the downturn, farrowing intentions signalled a return to growth in meat production early next year.

 

Some additional increases in production should be expected by the last half of 2011, with perhaps 3-4% more pork, Hurt said. However, the soaring May hog market was a "short-term aberration", and will show some reversal as rising retail pork prices erode consumer demand for pig products.

 

Furthermore, economic revival is likely to prove slow and unemployment will remain high, contributing to overall weak retail demand and more moderate live hog prices, he noted.