December 20, 2006

Corn prices may limit US hog herd expansion in 2007

Rising corn prices could limit long-range hog herd expansion in 2007, market observers said.

Chicago Board of Trade corn futures for the week-ended Dec 8 averaged US$3.59 per bushel, compared with a US$1.90 average a year ago. Industry analysts anticipate that the trend will continue through next year.

Rising corn prices shrink producers' bottom lines and smaller profits may curb long-range hog herd expansion plans, analysts said, thus driving summer-month contracts.

Hot weather can also stunt hog growth and conception, limiting supplies and resulting in high hog prices.

Lean hogs are now 71.93 cents a pound compared a year ago average of 68.90 cents. The 4.4 percent on-year increase was due to feedgrains' influence coupled with seasonal historical patterns that show that hogs are less plentiful during scorching summer temperatures.

Any setback in summer 2007 hogs may be viewed by some traders as a buying opportunity, especially during periods of seasonal weakness. During the spring, hog prices tend to experience longer price bottoms before climbing into peak summer demand season, he said.

However, the trader said it is necessary for deferred-month corn futures to remain at relatively high levels to attract enough acreage since farmer's input costs have risen. There is no reason to plant corn, which is more expensive to grow than soybeans, unless the market gives farmers enough incentive to do so, he said.

Hog producers are simply going to have to cope with higher feed costs in future, and hog prices are going to have to reflect those additional input costs , the trader said.

Major hog producers will look for small ways to offset increased operating costs, but may not scale back significantly because pork production has been profitable over the past three years, traders said. Smaller scale farms however are the ones likely to cut production.