October 15, 2009

Recent sharp gains in corn futures are worrisome for the nation's beleaguered hog producers, most of whom have experienced heavy losses over the past two years.

 

New crop December corn futures have recently rallied about 50 cents a bushel from an early-June to mid-September average of about US$3.30. December corn Wednesday hit a 3 1/2-month high.

 

For hog producers, especially those who purchase most of the grain they use for feed, the gain in corn prices could make a difference in whether they maintain their breeding herd size or cut back further this fall and winter.

 

Producing a hog for slaughter requires about 10 bushels of corn, so a 50-cent rise per bushel translates to a US$5 higher cost per head. If soymeal prices rise in relation to corn, the increase in the feed cost is even more.

 

The nation's livestock and poultry producers have seen extremely volatile grain and soy-complex prices during the past 16 months. Corn and soy prices hit record highs in June 2008, with some corn futures contracts hitting above US$8 per bushel at that time. December corn prices fell to just above US$3 a bushel in early September before mounting a rally.

 

Some analysts have recently recommended that swine producers, along with other livestock and poultry operations, should consider locking in prices for at least a portion of the corn and soy meal they will need for 2010.

 

Darrel Good, an agricultural economist at the University of Illinois, said in his latest market outlook report released Monday that December 2009 corn futures have increased about 65 cents a bushel from the early-September low, and November 2009 soy futures have rallied more than US$1 from the low hit earlier this month.

 

"Freezing temperatures this past weekend likely ended the growing season for late-maturing crops in northern and western growing areas before full yield potential was reached," Good said. "In addition, more widespread incidence of disease in both crops may reduce yield and quality potential."

 

Also, demand has increased for corn from the ethanol industry, which has experienced substantial economic recovery. For soy, the demand strength has been mainly in the export sector, Good said.

 

Hog producer losses since September 2007 have been estimated at more than US$20 per head on average and as much as US$45 to US$50 at certain times. Using price protection on inputs could help producers hold down their total costs and give them a better chance of turning profitable in 2010.