031020 Economist: Pork Prices to Rebound in Spring

Purdue University ag economist Chris Hurt says hog producers can expect some financial losses this fall and early winter due to several market factors, but should notice an improvement in prices by the beginning of 2004.

Hurt says fall hog prices are expected to average $36 to $40 on a live hundredweight basis, and winter prices may be about $1 higher. Spring and summer 2004 prices are expected to average $39 to $44.

"Costs of production are estimated at $39 to $41 per live hundredweight over the next year, thus operating returns are expected to show a $1 to $2 loss this fall and winter," Hurt said. "However, there should be a similar level of profits next spring and summer, and producers may about break even over the next 12 months."

"Since U.S. hog producers have cut back on the size of the breeding herd for five consecutive quarters, they hoped to be operating with solid profits by now," Hurt said. "However, several market factors have gotten in the way to cause modest losses for the rest of the year."

Hurt says one of those factors is the increase in hog and pig imports from Canada due to the bovine spongiform encephalopathy report there earlier this year. Canadian consumers ate more low-priced Canadian beef but reduced pork consumption, sending more hogs and pork south. USDA has begun to allow more Canadian beef into the United States, which will increase beef prices in Canada. This will help increase Canadian pork consumption through the fall and reduce the flood of pork products coming to the United States, Hurt said.

"There still remains a major price difference in U.S. and Canadian cattle," Hurt said. "In the U.S., cattle are currently $90 a hundredweight and $55 a hundredweight in Canada. Canadians will continue to eat beef as a substitute for pork as long as cattle prices are so low, but the difference should narrow as more Canadian beef enters the U.S. this fall and winter."

Hurt also notes that producers are facing higher soybean meal prices, which increases cost of production. In addition, soybean yields thus far have not been as good as anticipated, which will tighten supplies this year. Hurt said that even though meal prices are higher right now, producers should think about booking some portion of their soybean meal needs in October to protect themselves against potentially higher prices.

Hurt also said that late fall and winter soybean meal prices may be highly influenced by South American soybean production prospects. If South America experiences above normal yields, producers could see lower meal prices. However, if South America has below normal production, there is the potential for much higher prices, he said.

Another strategy producers can consider is to own as much corn as they can at harvest since yields are better than expected this year, Hurt said. Corn prices may be at their harvest lows in late October and early November. Futures and basis levels will likely weaken somewhat more, and the cost of storage is low, he said.

In addition to these market factors, Hurt said farrowings will be unchanged this winter. Producers did not cut back as much on hog numbers this year, and larger producers across the United States are not getting out of the industry like they have in the past. In Indiana, around 10,000 hog farms have been lost in the last 10 years. In 1990 there were 13,000 hog farms in the state versus 3,400 farms now, Hurt said.

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