Pork Losses Could Continue Through First Quarter 2010

Rising feed costs and demand are two hurdles on the way to profitability.

Published on: Jun 1, 2009

The H1N1 flu and rising feed prices have once again put the pork industry into deep losses, continuing the trend of "red ink" dating back to the fall of 2007.

 

"While recovery in hog prices is expected as the world tries to return to more normal consumption, the financial stress may be near a breaking point for some producers," says Chris Hurt, Purdue University economist.

 

In April 2009, hog prices were ready to turn upward. Then on the 24th came the first word of a human flu the media had called "Swine Flu."

 

"Lean carcass values closed that Friday at $61 on April 24, but just seven trading days later prices dropped by $10," adds Hurt.

 

Rising feed prices have also been a growing threat to profitability. From April 24 to May 22, July corn futures rose by $.45 per bushel and July soybean meal futures by $57 per ton.

 

"On April 24, hog producers were losing about $5 per head. Now, that number is about $25 per head," Hurt says. "Most everyone in the industry has been financially weakened and the outlook is more uncertain than usual."

 

Recovery in pork prices should be the norm as U.S. consumers return to more normal buying patterns. World consumers who, in the first quarter of 2009, had already reduced their purchases from the U.S. will probably take longer to return to normal buying patterns.

 

Live hog prices in the second quarter are expected to average in the mid $40s. Prices should recover in June with prices moving up to the very high $40s and low $50s.

 

Prices are expected to average in the very low $50s in the third quarter and then finish the year in the mid-to higher $40s. In 2010, prices are expected to continue to improve in the spring and summer at the mid $50s.

 

"With current futures prices for corn and soybean meal, the costs of producing pork is estimated at about $50 per head and moving higher to about $52 this summer," Hurt warns.

 

Unfortunately, these costs are higher than expected hog prices for the rest of this year and through the first quarter of 2010.

 

"Losses for the last-half of this year are estimated at $7 per head. For the entire year of 2009, losses would be $12 per head compared with $17 per head of estimated loss in 2008," cautions Hurt.