COLUMBUS – Nasty winter weather in U.S. pork producing states has probably had a bigger impact on resurgent hog prices than the export potential created by Britain’s outbreak of foot-and-mouth disease, says livestock economist Brian Roe, Ohio State University.
Cash prices for live hogs are running from the low- to mid-$40 per hundredweight range, a $5-$6 cwt. increase since mid-February. Farmers cover all cash costs of production when prices exceed the mid to upper-$30 cwt. range.
“How much we can attribute the increase to the foot-and-mouth outbreak is really uncertain,” Roe said. “Foot-and-mouth might have contributed about $1 to $2 of the increase.
“Probably bigger factors for the increase were weather factors that slowed hog growth and interfered with some shipments to market.”
On the other hand, foot-and-mouth disease is a good reason for U.S. farmers to be jittery, because it’s highly contagious and can be carried across international borders.
“It’s only a plane ride away from visiting the shores of the United States,” Roe said. “It could not only take down pork, but beef operations, also.”
Another unknown is whether the foot-and-mouth outbreak will affect Europe’s consumer confidence in pork as mad cow disease affected demand for beef. However, foot-and-mouth has no consequence for human health while mad cow disease does, and thus would seem less likely to turn the European public away from pork. Britain is not a key competitor in the world pork market anyway, Roe said.
Denmark’s highly competitive export industry is the key, he said. If foot-and-mouth disease affects Danish herds, there could be a robust market response for U.S. pork.
“I don’t think Britain is a large export powerhouse in that way,” Roe said. “There might be a little gravy on the edges to be picked up in the market, but Britain is not the meat and potatoes of pork exports as is Denmark.”
Meanwhile, the upsurge in pork prices also might be undergirded by an increase in U.S. consumer demand, Roe said. Consumers might be eating more pork because of increasing beef prices at the retail level. For example, retail beef prices jumped nearly 4 percent in January after being flat for much of 2000.
“If these higher beef prices persist, we should be able to test the depth of the newly resurgent beef demand that has developed over the past couple of years,” Roe said.
Longer term, all eyes will be on the USDA’s Quarterly Hogs and Pigs Report – to be released March 30 – for a clearer picture of hog prices through the end of the year. Some pessimism is in store for year’s end because USDA recently reported the January pig crop was 6 percent larger than the January 2000 crop. It is uncertain whether the increase was merely a monthly fluctuation or a longer-term trend.
Some evidence of the latter is that sow inventories increased by 4 percent compared to January 2000, and January’s pig litter numbers hit a record 8.94 pigs per litter.
“Some people are starting to become concerned that pork prices might revert to the tragic low prices of December 1998,” Roe said. “There could be a mild depression below break-even prices at the latter part of the November to December time period, but we don’t know yet.”
Pork producers whose operations are sensitive to prices below break-even levels can act now to secure a $30 price floor by buying a put option on the futures market, Roe said.
“They may be able to lock in something fairly reasonable,” Roe said. “If they really get hurt from prices below $30 per hundredweight, it would be wise to secure some downward protection.”