URBANA, Ill. — The H1N1 flu and rising feed prices have once again put the pork industry into deep losses, continuing the trend of “red ink” dating back to the fall of 2007.
“While recovery in hog prices is expected as the world tries to return to more normal consumption, the financial stress may be near a breaking point for some producers,” said Chris Hurt, Purdue University economist.
In April 2009 hog prices were ready to turn upward. Then on April 24 came the first word of a human flu the media had called “swine flu.”
“Lean carcass values closed that Friday at $61, but just seven trading days later prices dropped by $10,” said Hurt.
World health representatives and the media were quick to respond to pork producers’ outcry regarding how a simple name could damage their industry.
“However, much damage was done. The longest lasting damage will likely be in the export markets which had been strong with a record 20 percent of U.S. production headed for foreign markets in 2008,” said Hurt.
Hurt said in the domestic market, pork buyers at grocery stores and restaurants were cautious, as they did not know how consumers would react.
Backup of pork
This, in combination with reduced exports, caused a backup of pork in the wholesale market. Wholesale prices dropped about seven percent, but farm level hog prices dropped by 17 percent.
In mid-May, for a few days, carcass prices actually moved higher than their April 24 benchmark.
“But these prices were viewed as too optimistic. As of May 22, carcass prices were down eight percent from April 24,” said Hurt.
Rising feed prices have also been a growing threat to profitability. From April 24 to May 22, July corn futures rose by $.45 per bushel and July soybean meal futures by $57 per ton.
“On April 24, hog producers were losing about $5 per head. Now, that number is about $25 per head,” said Hurt. “Most everyone in the industry has been financially weakened and the outlook is more uncertain than usual,” he said.
Recovery in pork prices should be the norm as U.S. consumers return to more normal buying patterns.
World consumers who, in the first quarter of 2009, had already reduced their purchases from the U.S. will probably take longer to return to normal buying patterns.
Live hog prices in the second quarter are expected to average in the mid-$40s. Prices should recover in June with prices moving up to the very high $40s and low $50s.
Prices are expected to average in the very low $50s in the third quarter and then finish the year in the mid- to higher $40s.
Continue to improve. In 2010, prices are expected to continue to improve in the spring and summer at the mid-$50s.
“With current futures prices for corn and soybean meal, the costs of producing pork is estimated at about $50 per head and moving higher to about $52 this summer,” said Hurt.
Unfortunately, these costs are higher than expected hog prices for the rest of this year and through the first quarter of 2010.
“Losses for the last-half of this year are estimated at $7 per head. For the entire year of 2009, losses would be $12 per head compared with $17 per head of estimated loss in 2008,” said Hurt.