Demand Uncertainty Clouds Pork Outlook

Pork producers should remain profitable through 2006, says ISU economist.

Published on: Nov 10, 2005

Pork producers will likely remain profitable through 2006, says John Lawrence, Iowa State University extension economist.  

He says demand for pork has pushed up farm prices for hogs the last two years. As a result, pork producers have enjoyed 10 consecutive months (and counting) of profits. That's the longest stretch of profitability since the 1970s.

How long this demand strength will continue remains unknown. Already, pork demand is showing signs of weakening, which could impact the price outlook in 2006, says Lawrence. "If demand goes away, we could be in a world of hurt," he warns.

Hog price expected to stay profitable

Based on current conditions and prospects, Lawrence expects pork producers to stay profitable for at least another year and possibly into 2007.

Pork producers in the United States have limited their expansion of the nation's breeding herd, despite recently profitable prices, he notes. December-February farrowing intentions are up only 1.4%. However, he says pork supplies will increase by about 2% in 2006, which will be close to record highs.

How did we end up with record-large pork supplies on a smaller breeding herd? It's because of the increased productivity and efficiency of our producers, he says. "This comes from increased pigs per litter, more litters per sow per year and larger carcass weights," Lawrence explains.

An astounding 26% increase in U.S. pork exports during the first eight months of 2005 is helping to absorb the extra pork. International pork demand is expected to slow down when Japan reopens its borders to U.S. beef--which may happen in the next few months.

For the fourth quarter (October through December 2005) Lawrence projects hog prices on a live-weight basis will average $46 to $49 per cwt.

Low corn prices will have an effect

He projects that prices will rise to an average of $50 to $54 per cwt. in the first and second quarters of 2006, before dropping to an average of $47 to $50 per cwt. in the third quarter. He looks for them to average $41 to $46 in the fourth quarter of 2006.

With corn prices low here at harvest time and expected to stay low after harvest because of the big crop and piles of corn stored outside on the ground across much of Iowa, Lawrence says pork production costs will remain profitable at around $40 to $42 per cwt. in 2006.

"We might even get through the fourth quarter of 2006 without much red ink if demand for pork holds together," he adds. "Thus, the current stretch of profitability could run well into and perhaps through all of 2006. But we could run into problems around Labor Day in 2006, when we could drop into the loss category for hog production."