Hog producers are expected to continue losing money through early 2009, even if breeding herd reductions begin this winter — and that’s a big "if."
"The outlook is for continued large losses this fall and winter, then more moderate losses for spring and summer, before losses grow once more in the fall and winter 2008/2009," Purdue University Extension Economist Chris Hurt wrote in a recent report.
Hurt’s prediction is based on production costs, currently in the very high $40s (per hundredweight) and growing to the low $50s if cash corn prices near $4 per bushel and soymeal prices near $300 per ton by next summer.
Time to cull
"This outlook means the time is finally ripe for breeding herd cutbacks to occur in the first-half of 2008," Hurt said.
Some industry analysts have predicted producers may not cut back production even in the wake of losses, given their strong financial position going into the price declines and large fixed costs.
Hurt told Meatingplace.com if anyone is going to cut back, it will be the independent family corn/hog farmers who produce about 15 to 20 percent of U.S. hogs. He estimates they will receive $1.85 to $2.12 per bushel of corn marketed through hogs this fall and winter. "It sure would be easier to just haul the corn to the local ethanol plant at $3.50-$4.00 per bushel," he said.
The China factor
The other antidote to oversupply is increased demand. A spike in domestic pork demand is not likely, said Hurt, given the slow-growing and nervous U.S. economy and large competitive meat supplies.
China, however, could be the wild card. Ever since last summer, and as recently as last week, hog futures have rallied periodically on rumors that China will expand beyond the modest pork purchase it made from Smithfield Foods in August. (See Smithfield to sell pork to Chinese trading company on Meatingplace.com, August 27, 2007.) Smithfield said last week it has not made any new deals to sell pork to China. Reduced pork supplies from hog disease and a growing Chinese middle class able to afford more meat, however, continue to fuel speculation.
"The China demand could add dollars to market prices quickly, and single handedly reduce 2008 losses," said Hurt.
Source:
Janie Gabbett, Meatingplace.com, 11/28/2007