July 19, 2011

 

US hog herds to increase amid corn slump
 

 

Record pork prices may stop as corn dip to its lowest in three years, resulting in cheaper feed that encourages farmers to enlarge hog herds for the first time since 2007.

 

Corn-feed prices dropped to a six-month low on July 1 after the government said farmers planted the second-highest number of acres since 1944, while traders were anticipating a drop. Record pork exports helped drive hog futures to the highest level in a quarter century in April, returning the industry to profit after US$6.2 billion in losses in the 29 months through February 2010.

 

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% from the closing price on July 15 to 76.95 cents a pound next year if expansion occurs, according to the average estimate in a Bloomberg survey of 11 analysts.

 

Hog futures for October settlement also fell 1.35 cents, or 1.5%, to settle at 90.3 cents on the Chicago Mercantile Exchange, after declining the CME's 3-cent limit to 88.65 cents, the lowest for the most-active contract since June 7.

 

However, farmers may delay expansions for now because of concern that the USDA is overestimating corn supplies, 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.

 

"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 are not certain they're going to have any feed."

 

Rising exports also should help keep pork prices near a record, said another researcher. 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 supply 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 of pork in the first five months of 2011, 18% more than a year earlier, government data show. 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.

 

Meanwhile, 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 show.