December 3, 2008

Recession may boost profits for US hog producers in 2009

Lower feed costs and shrinking herds due to current economic recession may actually benefit hog producers, according to Chris Hurt, marketing specialist from the Purdue University Extension.


Cheaper feed costs and tighter pork supplies could put the industry back to profitability in 2009, said Hurt.


He added pork industries in Canada and the US have reduced breeding herds due to this year's losses. As a result, pork production next year is expected to fall 2-3 percent due to lower exports and declining domestic demand, but that may help lift average hog prices in 2009 a few dollars per cwt higher than the US$48 live price in 2008.


While producers would welcome higher hog prices next year, Hurt said what may be most important would be lower feed prices.


Hurt said estimated costs of production in 2008 were near US$53, but current localised futures prices indicate costs could drop into the US$46-48 range for 2009. Current forecasts for cash corn are seen to average US$3.50 in 2009 compared to this year's US$4.60 per bushel.


Farrow-to-finish pork producers operated under losses for much of 2008, but the current price relationship could return the US$5 per cwt in profits as prices could reach up to US$40 per cwt at the end of this year.


However, there will be many uncertainties, including the extent of the recession's impact on domestic consumption and trade, said Hurt.


Live hog prices averaged US$39 in November, down from the high of US$62.56 average in August, said Hurt.


Most of the decline, according to Hurt, is attributable to demand factors. Exports were high in the first half of 2008 due to a weak US dollar and aggressive buying by China prior to the August Olympics. However, China's demand fell sharply after the Olympics ended, he said.


In the first half of 2008, China accounted for 50 percent of the growth in US pork exports, which then plunged more than 60 percent in the third quarter, said Hurt.


The exchange rate of the US dollar has increased 20 percent since July, making US pork more expensive for importers. The higher exchange rate prompted USDA to lower export forecasts by 12 percent for 2008 and 12 percent for all of 2009.


Hurt added that the financial crisis had also severely impacted hog prices.


Since the crisis started, December lean hog futures have dropped about 14 percent or US$9 per carcass cwt, while impact on meat consumption is related to concerns about the depths of the recession, said Hurt.

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