July 8, 2008

 

Price boom approaching for US pork

US pork has been dramatically undervalued, especially for international buyers and a price boom would be forthcoming, according to Chris Hurt, agricultural economist at Purdue University.

 

In his latest market outlook for hogs and pork, released Monday (July 7, 2008), Hurt said "pork is at bargain basement prices."

 

US producers are producing and selling hogs at huge losses, which in essence is resulting in "huge subsidies to US and foreign consumers," Hurt said.

 

These low prices indicated that US pork prices would explode to the upside like other commodities have done.

 

US retail prices for pork have averaged US$2.85 a pound so far this year. Hurt estimates that pork producers have contributed to the lower pork prices through losses of about US$1.4 billion during the first half of this year.

 

Meanwhile, exports have expanded by 52 percent while imports have declined by 12 percent so far this year - trends that Hurt predicts will continue for the foreseeable future.

 

The world will continue to buy up the huge US production until pork prices move sharply higher, Hurt said. Moreover, foreign buyers would have more leverage to buy US pork since the US dollar is currently devalued.

 

Record high feed costs, hefty producer losses during the first half and a bleak outlook for profitability this fall are driving some liquidation of the swine breeding herd.

 

US hog supplies in autumn are expected to be 4 percent greater than a year ago, according to the USDA.

 

However, winter supplies could be down by around 3 percent and spring 2009 supplies could be down as much as 5 percent, Hurt said.

 

This could result in a price boom, beginning late this year and extending into 2009.

 

Hurt said the issue for pork producers is whether they can hang on long enough.

 

Hurt expects live hog prices to trade in the low-to-mid US$50s per hundredweight this summer and fall, then move into the low US$60s by winter before rising to the higher US$60s to mid US$70s by next spring and summer.

 

Cost of production for farrow-to-finish producers, at current feed prices, is estimated to be in the low US$60s live weight.