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2008 - An Ugly Ride for Pork Producers

by 5m Editor
28 December 2007, at 9:54am

US - Following nearly four years of profitable margins, the good news has come to an end for US pork producers, writes Marlys Miller.

USDA's December hogs and pigs report shows increases across all survey categories, and the numbers are higher than analysts' pre-report estimates, which equates to a bearish market response.

But beyond the analysts' response, is the fact that 2008's production increases come on top of record production numbers set this year. The gains also come as feed costs are projected to remain high or move higher, lending even more pressure on pork production costs.

In putting some figures together for 2008, John Lawrence, Iowa State University agricultural economist, used $4-per-bushel corn and $300 per ton soybean meal and came up with a $70 carcass-price break even price. "I have red ink penciled in for all of 2008, except perhaps for a few weeks in the summer," he says.

With rising corn prices and a heavy run of hogs in this year's fourth quarter, pork producers have already felt the pinch. "Fourth quarter 2007 was already a bit ugly," notes Lawrence. "I calculated losses at $27 per head in November, and $25 per head in December."

Fourth quarter hogs slaughter in general, and December's runs in particular (last week's set a record 2.449 million) have raised lots of questions regarding past USDA reports' accuracy and whether this one will be any different. If this report follows the others, 2008 could see some extremely burdensome hog runs.

Revised

USDA did revise some numbers related to previous reports; Canada has increased it's shipments to the United States by about 1 percent; and porcine circovirus associated disease has been tempered thanks to vaccines; all of which add up to more hogs. "But, all of that still does not adequately add up. There is still 2 percent to 3 percent of the hog slaughter that is not accounted of in USDA's numbers," says Victor Aideeyan, senior risk management consultant with Farms.com. "Where are all these hogs coming from?" He looks for more revisions coming in USDA's March and June 2008 pig crop reports.

The general consensus is that runs will remain high heading into the new year. Just how long and how high is uncertain. "It could be well into February before we see weekly slaughter get back to 2.2 million or 2.1 million," says Lawrence.

Source: Pork

Further Reading

- For more comment on the US pig sector click here.

5m Editor