By DOUG SCHMITZ
Iowa Correspondent

DES MOINES, Iowa — According to a leading agricultural economist, consumers will be paying record high prices for U.S. pork this year as higher feed prices over the past four years finally hit consumer wallets.

“Retail prices through May this year have averaged a record $3.35 per pound, which is up 14 percent from $2.93 a pound during the same period in 2010,” said Chris Hurt, a Purdue University agricultural economist.

Hurt joined Daniel Vaught, analyst with Vaught Future Insights in Altus, Ark., and Jim Long, president and CEO of Genesus Genetics in Manitoba, Canada, in a recent teleconference.

“Everyone in the pork marketing channel is sharing as packer gross margins are up 10 percent, retail gross margins are up 14 percent,” Hurt added, “and producers have received 16 percent higher prices.”

At the same time, hog prices also set daily records at $78 per live cwt. in late June, he said.

“Moderation is expected from these extremes, with third-quarter prices averaging in the mid-$60s,” he said. “Prices are expected to be in the very low $60s this winter before moving back to the mid-$60s for the spring and summer of 2012. For 2011, live prices are expected to average a record $63.50, compared to $55 last year.

“Corn price volatility is a major component of the pork production uncertainty. Corn prices reached their peak on June 9 when Midwest cash prices were commonly $8 or higher in some locations.”

Adding to U.S. pork demand is a record level of pork exports, taken from numbers through April, showing a 19 percent increase over the same period in 2010, Hurt said.

“For the first four months of the year, exports represented an amazing 22 percent of all the pork being produced in the United States,” he said. “The big export increases this year are heading to Asia, led by South Korea, Japan, Russia and China. The USDA projects that exports for the entire year will be up 15 percent.”

Although some profit would be likely in 2012, Hurt said given the current outlook, profit would average about $7 per head, “but much uncertainty remains.

“Will this modest profit potential result in herd expansion? The answer is a clear no,” he said. “Pork producers know that corn and soybean yields are not yet assured and that the feed price outlook could still change sharply, depending on final yields in the United States and the Northern Hemisphere.

“For this reason, there will be almost no movement to expand herds until sub-$6 cash corn prices are assured this fall. At that point, the expansion discussion can begin, which means it will be very late 2012 before pork production could begin to rise.”

While Vaught said “feed costs over the next several months will make producers reluctant to expand herds,” Ron Birkenholz, director of communications for the Iowa Pork Producers Assoc., said “pork producers are very concerned about the availability of feed this fall and beyond, which may be a reason no significant increases in production are planned.” (See related article.)

On the other hand, Long said “the productivity factor can be seen clearly in the report: Pigs per litter are up 0.22 year over year to 10.03 – a new record.
“We expect productivity to increase; at Genesus we see a genetic trend line of 25 per litter of pigs born per year improvement,” he explained. “Genesus now has customers weaning 13 pigs per litter consistently, three pigs better than the 10 per litter” in March’s report.

“Productivity will continue to increase, with the most successful producers utilizing the best available technology.”

What’s more, the larger-than-expected U.S. hog herd in last month’s quarterly report may weigh on cash and futures over the next few months, Hurt said.