July 18, 2011

 

US pork herds to expand on corn price slump

 

 

The biggest slump in US corn in three years may mean the end of record US pork prices as cheaper feed spurs US farmers to expand hog herds for the first time since 2007.

 

Midwest farmers may make US$20 a pig in the next 12 months, compared with a loss of about US$20 at the end of 2010, said Mark Greenwood, who oversees US$1.4 billion in loans and leases to the industry as a vice president at AgStar Financial Services Inc. in Mankato, Minnesota. Futures may drop as much as 16% to 76.95 cents a pound next year if expansion occurs, according to analysts.

 

"Once we see that corn crop is there and that those input costs are going to come down and stay down, there will be some expansions," said Bill Tentinger, who markets about 10,000 pigs a year in northwest Iowa and anticipates producing about 20% more this year. "I am going to produce more pounds of pork. I'm doing it cautiously. That's what you're going to see in the industry, people are going to be very cautious."

 

Cheaper pork may help lower US consumer prices that rose 3.6% in May, the biggest on-year gain since October 2008. The government has forecast shoppers will pay as much as 7.5% more for pork in 2011, topping the 4% jump in overall food costs, and fast-food chain Jack in the Box Inc. and steakhouse Texas Roadhouse Inc. have raised prices to cope with higher commodity costs.

 

Corn, the main ingredient in feed, fell 17% in June as farmers planted more crops to take advantage of prices that reached a three-year high. Hog futures on the Chicago Mercantile Exchange gained 15% this year, as the US exported more pork than any other nation and the US Meat Export Federation predicted record shipments this year.

 

Farmers may delay expansions for now because of concern that the USDA is overestimating corn supplies, AgStar's Greenwood said. Some may wait until their profit per pig exceeds US$15 for another five to six months before adding sows to their breeding herds, pushing back gains in supplies to slaughterhouses to 2013, he said.

 

The USDA is underestimating planting delays caused by floods and drought and the risk that yields will decline before the harvest begins in September, said an analyst. The department will revise its estimates, and grain for December delivery should rally 9.5% to US$7.50 a bushel or higher, he said.

 

"There's more caution than there is optimism," said Doug Wolf, the president of the National Pork Producers Council, an industry group based in Des Moines, Iowa. "Nobody wants to expand if they're not certain they're going to have any feed."

 

Rising exports also should help keep pork prices near a record, said Rich Nelson, the director of research at broker Allendale Inc. in McHenry, Illinois. Shipments may increase 8% to 2.07 million tonnes this year, said Dan Halstrom, a spokesman for the US Meat Export Federation.

 

"Once we get into 2012, even though we will have a little higher supplies than the trade is expecting, we have to understand that 2012 will be a meat-deficit year," Nelson said. "The message for 2012 pricing is slightly higher supplies, balanced by much stronger demand."

 

US exporters shipped 2.08 billion pounds (942,288 tonnes) of pork in the first five months of 2011, 18% more than a year earlier, government data showed. The biggest buyers were Japan, Mexico, and South Korea. Futures on July 11 rose by the 3-cent exchange limit on speculation that China, the world's largest pork consumer, will accelerate imports to damp domestic prices that were 57% higher in June than a year earlier.

 

US retail-pork prices in May reached an all-time high for the second month in a row, with boneless ham fetching US$3.65 a pound, the highest since at least 1991, government data shows. In February, pork chops touched US$3.751 a pound, the highest since at least 1980. In June, retail bacon prices averaged US$4.84 a pound, the highest since at least 1980.

 

Pork prices surged after the US breeding herd shrank to the smallest on record in the first quarter of 2010 as farmers sought to contain losses. While corn still costs 69 % more than a year ago, sows are producing the biggest litters ever, helping to shore up margins. The average litter was a 10.03 piglets in the three months ended May 31, government data showed.

 

US pork production may climb 1.6% to almost 23.07 billion pounds next year, the USDA forecasts. The average American will eat 46.7 pounds of pork next year, 0.9% more than in 2011, the department estimates.

 

Expansions may help the economy of Iowa, the biggest US hog-producer. The state's unemployment rate of 6% compares with the national average of 9.2%. Its pork industry employs 39,000 people directly and contributes almost US$5 billion a year to the state economy, according to the Iowa Pork Producers Association.

 

"There's going to be some lean years for grain farmers and it's going to swing back to the livestock industry, which is going to have some good years," said Mark Brummer, a 52-year- old Illinois farmer who has raised hogs for three decades and decided to add about 85 % to his production capacity in January. "In order to stay competitive in the business, we had to expand just to keep up with what's going on in the industry."