Weekly Outlook - Pork Industry Faces Record Losses

A tsunami of red ink is about to wash across the pork industry which is facing losses unseen even in the fall of 1998 when hog prices at times approached zero value. The stressors include: more hogs than expected, rapid sow liquidation now underway, and record feed prices. Losses in the final quarter of this year could be $60 per head, exceeding the previous record quarterly losses of $45 per head in the fall of 1998.

Slaughter numbers in the past two weeks have been up six percent when only about one percent more hogs were expected. This has caused a $10 per hundredweight drop in live prices since late July, with prices now in the low-$60s. The source of those extra hogs is probably related to some delayed marketings due to the summer heat, to a desire to sell pigs more quickly before prices really tumble moving into fall, and to high sow slaughter. Projected prices for the final quarter this year are in the mid-$50s, using current lean hog futures as a base. Tragically, costs of production are expected to be above $75 per live hundredweight for the remainder of the summer, this fall, and winter.  <Read More>

Weekly Outlook - Pork Producers Ask, What Happened?

There is an old saying that, “Life is what actually happens when you’re planning on something else!” That adage is playing out for pork producers this spring. The spring hog price rally has not occurred and feed costs have now pushed to record high levels. This combination is resulting in a disappointing period of financial losses this spring and summer that was not anticipated earlier this year.

Hog prices normally shoot up in the spring. In fact, in the past 5 years, live hog prices rose by an average of about $11 per hundredweight from early April to mid-May. This year, prices struggled to hold on to their early April levels in the low $60s. The reasons for the lack of a spring rally are not totally clear. Perhaps there was too much anticipation of high spring and summer hog prices earlier in the year. June lean hog futures, for example, reached levels equivalent to about $76 per live hundredweight in late February. This was just before the “lean finely textured beef” issue hit the media waves that sent livestock futures prices down. The lowest cattle futures prices came on more bad news announcing a fourth BSE cow on April 24. Lean hog futures then bottomed about 10 days later.  <Read More>

Will Consumers Come Back to Pork? Yes!

Per capita pork consumption in the U.S. has declined sharply in the past several years due primarily to strong pork export growth. Per capita pork consumption in the U.S. averaged 50.1 pounds in 2006 and 2007 when $2 per bushel corn was still the rule. That dropped to a low of 45.8 pounds by 2011, a nine percent decrease.

Surprisingly, as U.S. per capita consumption was dropping sharply, total U.S. pork production grew by eight percent from 2006/2007 to 2012. How could total pork production grow while domestic per capita consumption was falling sharply? The answer is that U.S. pork exports expanded and now U.S. consumers have new competition from foreign buyers for limited pork supplies. There is a saying, “China is going to eat your lunch,” and that statement has some limited truth. China was the 6th largest buyer of pork from the U.S. in 2006, representing five percent of U.S. exports, but moved to the third largest buyer by 2011 representing 15 percent of U.S. exports. <Read More>

Weekly Outlook - Hog Producers Follow Prudent Path

Hog production returned to profitability in 2011, but producers remain cautious about the future. This is evidenced by the modest expansion of the breeding herd as reported by USDA at the end of the year.  Limited expansion would seem to be the prudent path until more is known about 2012 crop yields and feed prices. This suggests no expansion of the breeding herd until mid-summer 2012.

Pork production is expected to rise by 2 to 2.5 percent in 2012, but most of that increase is due to more pigs per litter rather than from larger farrowings. Exports are expected to remain strong so that the per capita pork availability in the U.S. will only increase by about one percent. Pork demand will also be supported by smaller per capita supplies of beef and poultry in 2012. As a result, hog prices are expected to be down only modestly from 2011 levels with similar costs. This means another year of profitability is likely. <Read More>