Hog producers face at least another year of financial losses, a leading ag economist told farmers and others attending the World Pork Expo this week in Des Moines. The three-day event, which will draw 18,000 to 20,000 visitors, opened June 3 at the Iowa State Fairgrounds.
Glenn Grimes, long-time University of Missouri livestock economist, gave an update on pork production economics and the outlook for hog producers. He says a cutback of 5% to 10% in the nation's sow herd is what the hog industry needs to boost hog prices stop the flow of red ink.
Not getting seasonal hog price strength
"We are not getting the seasonal hog price increase we normally do this time of year and we are attributing some of that to the "non-swine flu" that has adversely impacted consumer demand for pork," he says. Hog prices have basically just moved sideways at a time when in past years the market has always rallied substantially.
"This lower than expected hog price situation is making it rough on hog producers who somehow have to downsize the hog herd," says Grimes. "That has to happen. It will happen. It's going to be real painful. And there are some efforts by the industry to promote a buyout program that we sure hope will reduce the U.S. hog breeding herd by 5% to 10%."
Grimes talked about feed costs and offered hog price projections for figuring breakeven prospects. Hog producers also have to look at the supply side and lack of demand for pork, he says. What are the breakeven prices for hogs going into summer?
One problem is $4 corn, and higher bean meal price
Grimes says breakeven on a live basis for hogs is somewhere in the low $50 per hundredweight range. "One of our problems is $4 corn," says Grimes. "If we had $2 per bushel corn today, hog producers would be in much better shape. And in fact, 2008 would have been a profitable year had we had the corn prices and hog prices we had five years ago."
How are hog-slaughter numbers doing currently? Slaughter numbers are declining a little, he says, "but not nearly enough from the record hog supply we had last year."
Projecting hog prices and financial returns six months from now and a year from now, where will the hog industry be? "Many hog producers will be forced to cut back on hog numbers," he says. "A year from now we should be looking at financial recovery. Hopefully, we'll have profitable hog prices by that time."
The U.S. hog industry has to downsize
"We have to downsize," says Grimes. "We had hoped that hog prices could get to $75 to $80 per hundredweight by now, but the market just can't seem to get above $60." The June futures price contract for live hogs closed down $2.45 per hundredweight at $57.30 in trading on Wednesday June 3.
While domestic demand for pork has held up relatively well through the economic downturn, and it even has made its way past the H1N1 flu scare last month, Grimes says an expected decline in pork exports of as much as 13% this year would put a lid on hog prices.
Another problem for hog producers, Grimes says, is that the typical sow today produces more than a quarter-century ago. "In 1980, the typical sow produced 7.25 pigs per litter. That means at the end of the year she's produced as many as 20 pigs, where in 1980 she would produce 15 or fewer pigs."
Volatile corn, soybean prices this summer?
Iowa State University economist Bob Wisner also spoke at the World Pork Expo and warned hog producers that they may face a renewal of volatile corn and soybean markets this summer as worldwide supplies of grain tighten.
"Soybean stocks are tighter than any time since 1965," says Wisner. "And crop shortages in South America probably mean stronger export demand for corn, which will push up prices."
The price of corn reached a record $8 a bushel last summer amid a historic infusion of speculative funds into commodity markets. When those funds retreated in the fall, so did corn prices, to below $4 a bushel. But Wisner says that relief on the feed side may be short-lived.
The corn price of $4.32 per bushel on the Chicago Board of Trade June 3 is up about $1 per bushel from early March. Soybeans are $11.82, and that price is up almost $3 per bushel from early spring.