WEST LAFAYETTE, Ind. — The futures market is optimistic and pork producers have a chance to lock in prices that will at least let them break even, said one Purdue University agricultural economist.
“When looking forward to 2010, most analysts who predict hog prices say prices will not be as high as the cost of production,” said Chris Hurt, Purdue Extension livestock marketing specialist. “This will be the third consecutive year that pork producers are facing a loss.”
The outlook is for hog prices to average about $46 to $47 per head next year.
“Prices are expected to move from about $44 in the first quarter to near $50 in the second and third quarters, and back to the mid-$40 range in the final quarter,” Hurt said.
“Given the assumption of $50 costs, this would still leave $10 of loss per head. However, the current financial reality likely means the herd will decline, demand will improve and hog prices will be higher than the current forecast.”
Will be higher
However, futures traders believe hog prices will be higher.
“Using lean hog futures at the close Nov. 20 and the average Eastern Corn Belt basis level for the last five years, the futures market is suggesting $50.50 for a farm level price next year, which suggests a break even price,” Hurt said.
“If there is an unfortunate side to these higher prices, it is that it may increase producer/lender optimism, resulting in a smaller-than-needed reduction of the breeding herd. If so, selling lean futures now will be positive.”
Hurt recommended producers work with a reputable market advisory firm to lock in futures. Producers should not only lock in their hog prices, but also their feed costs, he said.
“By locking in break even prices, producers can keep from losing more money and moving backwards,” Hurt explained. “This should give lenders better assurances. If a producer doesn’t break even in 2010, it’s not just the equity of the farm family that will erode, but in some cases the lenders.”
Don’t want hog buildings
Bankers don’t want residential houses right now as foreclosures, Hurt said, and they certainly don’t want hog buildings.
They just need to know that they’re not going to lose money, he said. It’s the producer’s job to increase the lender’s confidence and give them the needed assurance.
“The biggest non-assurance in the last two years has been the markets,” Hurt said. “Lenders have two options: Do you want greater assurance that your producers won’t go backward financially in 2010, or do you want to take the chance? Lenders like lower risk.”
Work together
These are tough decisions, but the producer, lender and market adviser can work together to capture the gleam of that shining star, he said.
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