By MEGGIE I. FOSTER Assistant Editor WEST LAFAYETTE, Ind. — Although one Purdue University agricultural economist may not be singing the words to Madonna’s famous single, “Like a Prayer,” he has certainly described the recent positive turnaround for hog prices as an answered prayer.
“Overall, the current futures forecasts say that producer losses will not be nearly as bad for the rest of this year as had been anticipated,” said Chris Hurt, who originally expect 2008 to be the worst financial year for producers in history, with prices way below breakeven until mid-2009.
“Earlier, I suggested it would take a 6-8 percent cut in the breeding herd to return to profitability. Now, it appears that more modest cuts may return the industry to profits, at least if the world keeps buying ‘high value’ U.S. pork. Thank goodness for miracles and thank goodness economists’ bleak forecasts aren’t always right,” Hurt said, all but raising his hands in the air and shouting “Hallejueah.”
In a bit of excitement, Hurt reacted to the recent changes in the hog market from $35 on a liveweight basis in mid-March to $58 as of May 20.
“The huge financial losses have slowed as hog prices have recovered much closer to costs of production,” he said. “What an amazing turn-around in such a short period of time.”
“This total surprised me, I don’t understand it, how it so quickly came about,” wondered Randy Salsbery, a grain and pork producer from Tipton County, Ind. This puts us back in the black in one of the fastest turnarounds in pork pricing that I’ve ever seen.”
Although Salsbery noted that not all producers are out of the red just yet.
“Some of the big players are not at all at break even, but they’re getting closer,” he said. “I don’t know what will happen, this may result in not as positive for producers down the road.”
Surprising prices for pork Hurt describes this reversal of fortune as “surprising,” and said that the average seasonal price increase from early April to early June over the past five years was $11 per live cwt. This year the seasonal increase has been $23 so far, more than double the normal increase.
Next, he asked that producers and market buffs “consider that this surprising price increase is occurring with pork production up about 10 percent, almost defying basic economics.”
“No one has any solid estimate as to why this happened, we are all scratching our heads,” Salsbery joked. “I’m not making any crazy plans because of this pricing, I’m just going to maintain status quo and continue to be as efficient as we can.”
“We are just thankful that Indiana’s pork producers have had a chance to breathe a bit of a sigh of relief in the last few weeks as hog prices have rebounded significantly from their lows just a few short months ago,” said Indiana Pork Executive Director Mike Platt.
Although many Midwestern producers are likely enjoying the sudden miracle with as few questions as possible, most just want to know why this happened and when the good fortune may come to an end.
Hurt quickly pointed to the fact that since supplies are sharply higher, demand is the most likely place to look for the answer, and export demand is the most probable source.
“In the first quarter of 2008, pork exports were up 40 percent and imports were down 10 percent,” he said. “The net impact was a 61 percent improvement in net trade volume.”
The bottom line, Hurt said, was that additional trade enhancement in the first quarter accounted for nearly 5 percent of all production.”
Pork demand still steady Platt added that demand for U.S. pork continues to be exceptionally strong domestically, and even stronger internationally.
“High value pork product is moving at record rates, and there are no indications that demand will drop anytime soon,” Platt hoped. “When viewed from the demand side, the industry actually is in great shape.”
Hurt said that pork producers know that pork has been cheap in the United States, but with the rapid devaluation of the U.S. dollar, U.S. pork was doubly cheap to some foreign buyers. As a result in the first quarter, shipments to Hong Kong were nearly seven times larger. Chinese purchases were up nearly three times. Exports to Russia were more than double and exports to Japan rose by 8 percent and to Korea by 27 percent.
“China, of course, deserves a special note as pork production there was reduced in 2007 by 9 percent due to disease problems,” he said. “China is in the process of rebuilding the herd but is willing to import more pork in an attempt to reduce the inflationary pressure on pork and food prices in general.”
May 28, 2008 |