By MEGGIE. I. FOSTER
Assistant Editor WEST LAFAYETTE, Ind. — While the U.S. pork industry begins to travel back on the road to recovery … finally, a Purdue University ag economist reminds producers that it may take up to two years for the industry to recoup losses from 2008 and 2009.
But there is no doubt about it, with producers reporting profits of $21 per head and then some in 2010, the hog industry is on its way back up from near drowning levels during the last two years, explained Chris Hurt, of Purdue.
“Grain prices went up in 2007 and stayed there until 2009, but they’re finally on their way back down,” said Hurt. “People also are starting to get over the H1N1 scare, and slowly but surely, the economy is starting to get better.”
The primary culprits causing the downward spiral and eventual liquidation in much of the industry came from high feed-grain prices, the H1N1 outbreak, and just a general poor economy, he mentioned.
Hurt estimated profits for the remainder of 2010 to stay close to $21 per head, and $10 for 2011.
“Clearly, it will take this year and next just to dig out from under the losses from the past two,” he said, referring to losses of $11 per head in 2008 and $24 in 2009.
The best news for producers comes in the form of pork supplies, though. According to Hurt, pork supplies are down, and are expected to stay down through the end of 2010.
“Pork production so far this year has been down four percent, and with population growth and trade, this means per capita availability has been down about five percent,” he said. “Summer per capita supplies should be down near eight percent, then three percent to finish the year. Limited amounts of pork should help maintain very strong prices, especially through summer.”
Unfortunately, not all is bright and positive in the industry, Hurt cautioned. Strong prices for producers will soon begin to take effect on U.S. consumer pocketbooks, and Hurt worries higher costs may cause consumers to back off on pork purchases at the grocery counter.
“Current data through April shows that U.S. retailers still had not increased the price of pork to consumers,” he said. “In the first four months of the year, retailers were selling pork at five cents per pound cheaper than in the same period in 2009. This means that the sharp increase in the farm level prices this spring are primarily being absorbed by much smaller retail margins. That won’t last. You can bet that retail prices will soar in coming months.”
As a result, Hurt worries that consumers may begin to baulk at higher price tags on pork this summer and fall.
In April, retail pork prices were an attractive $2.92 per pound. By the end of summer, consumers can expect to see prices closer to $3.10, according to Hurt.
“This, along with the world economy recovering at a slow rate and high unemployment, means consumers are likely to stay cautious about their pork purchases,” he said, adding that weakened demand for pork may come back to haunt producers and effect overall producer-paid prices.
The best suggestion to battle through another two years of so-so prices for producers, Hurt said, is to remain vigilant of market fluctuations and hold off on any expansion plans.
Live hog prices are expected to average near $60 for the second quarter, he said.
“As retail prices move up this summer, consumers will back off pork somewhat, even though availability will be the tightest of the year,” Hurt explained. “This means live hog prices should be expected to drop a few dollars into the $56 to $60 (per cwt.) range for a third quarter average.”
By the fourth quarter of 2010, Hurt anticipates live prices averaging near $50 per cwt., with winter 2011 prices edging slightly higher. He also mentioned that any expansion is not expected in the hog industry until March 2011.
“Even though profitability will still be relatively strong in 2010, many producers, and their bankers, want to see balance sheets improve before giving the OK for any expansion,” he added. |
