By Jeff Caldwell
A blue moon — when there are 2 full moons in the same calendar month) has come around 15 times in the last 40 years. In that same time period, live hog prices have passed the $60-per-hundredweight mark 13 times.
So, $60-plus live hogs are rarer than a blue moon. But, that magic number was surpassed in May when live hogs hit $63/cwt. Though he expects the rarity of this occurrence to continue, Purdue University livestock economist Chris Hurt says it’s definitely not a sign that the hog market’s softening, at least for a while.
“The outlook is for strong and profitable prices to continue for some time, although with prices generally below the rare $60 mark,” says Purdue University livestock economist Chris Hurt.”
It’s an optimistic projection for market conditions that have been good to hog farmers since spring. But, one thing that has changed in the outlook, Hurt says, is the expectation for expansion. Hog producers had simply been beaten around so much by market losses for so long, he says, that recovering from those losses likely trumps any immediate expansion plans for many farmers.
“The extraordinary profits this spring have some asking if producers will quickly expand. Losses eroded much of the equity of many producers, so they and their lenders want a period of profits to stabilize their financial position,” Hurt says. “The extremely high May hog prices were a short-term aberration. Retail pork prices will continue to move higher this summer and will slow pork consumption. Retail pork prices already reached record highs in May at $3.04 per retail pound and the climb will continue into the summer. The economic recovery is slow and unemployment will remain high, contributing to overall weak retail demand and more moderate live hog prices.
And, there are signs that supplies will remain tighter than a year ago through this year; Hurt says pork supplies will be down 4% for the second half of 2010, while farrowing intentions are lower for the remainder of the summer and fall. This will keep prices higher at least through the summer.
“Live hog prices are expected to be in the higher $50s for the rest of the summer and then begin a seasonal decrease in September. Third quarter prices are expected to average in the $56 to $59 range,” he says. “For the final quarter of 2010, the average price is expected to fall in a range from $50 to $53 with winter prices slightly lower.”
What’s it mean for profitability? Put those market prices together with expected lower feed costs, and Hurt says profits into 2011, though down from this year, will stay on in the black.
“Profit levels in the second quarter of 2010 were estimated to be near $33 per head and are projected to be $29 per head in the third quarter and about $15 in the final quarter. If so, this means 2010 profit per head would be near $21 compared to $24 of loss in 2009 and $17 of loss in 2008,” he says. “The profit outlook for 2011 is positive, especially through the summer of 2011. By the fall, prices could fall closer to costs of production. Yield uncertainty for the 2011 crops could also greatly impact feed prices. Early projections for 2011 are for $11 per head of profits, but all coming in the first 3 quarters.”
There’s still one big-time variable that could influence these market conditions — and possible future herd expansion — in the next year or so.
“Those who believe corn prices will generally move back to $4.00 or higher would not want to expand hog production,” Hurt says. “Alternatively those who believe corn will be under $3.50 might elect some moderate expansion in the range of 3% to 5%. Only time will tell who is correct.”