K-State Swine Day: Will Hog Prices Climb in 2009?

by 5m Editor
26 November 2008, at 9:22am

US - Against a backdrop of economic turmoil, moderately high feed costs and weak domestic demand, US hog prices may still climb modestly in 2009, thanks to strong export demand and less pork production, said University of Missouri agricultural economist Ron Plain.

That does not mean, however, that raising hogs will be profitable next year, said Plain, who spoke November 20 to attendees of Kansas State University’s annual Swine Day.

“It’s hard to be optimistic about domestic demand with the economy the way it’s going right now,” said Plain, who was the keynote speaker for the day.

His forecast for the benchmark Iowa-southern Minnesota negotiated price per carcass hundredweight in 2009 was for an average annual price in 2009 of $67 to $72. His forecast, broken down by quarter, included a price range of $58 to $63 in the first quarter; $70 to $75 in the second quarter; $73 to $78 in the third quarter and $66 to $71 in the fourth quarter.

The $67 to $72 price prediction would be above the projected 2008 average price range of $63 to $64 and the actual average price for 2007 of $61.91, he said.

On a live hog basis in the Iowa-southern Minnesota market, Plain anticipates the average annual price range of $51 to $55 per cwt for 2009. That would also be slightly above the projected price of $48 to $49 in 2008 and the actual average price of $47.05 in 2007.

Plain’s forecast by quarters for live hog trade per cwt in Iowa-southern Minnesota in 2009 included: $44 to $48 in the first quarter; $53 to $57 in the second quarter; $55 to $59 in the third quarter and $50 to $54 in the fourth quarter.

Plain said production of all four meats typically consumed in the United States – pork, beef, chicken and turkey – is expected to be down from this year’s production. If that materializes, it would be the first time since 1973 that production in all four categories was less than the previous year.

He expected overall hog slaughter of 113.670 million head in 2009, down 2.7 percent from 116.830 million head projected in 2008, but up from 109.172 million head in 2007.

While Plain said he expects demand for pork from U.S. consumers to continue weak because of U.S. economic woes, there are bright spots in the industry, including demand for U.S. pork from overseas buyers and fewer expected farrowings next year.

“Export demand is what’s driving hog prices. 2007 was the 16th consecutive record year for U.S. (pork) exports, he said, adding that 2008 will mark the 17th year.

That translates to billions of dollars in pork sales to overseas buyers.

In 2008, January-September, the value of total U.S. pork exports was $3.114 billion or $36.11 per hog slaughtered, according to U.S. Department of Agriculture data. That compares with the 2007 value at $2.752 billion or $25.21 per hog slaughtered and is well above the 2003 value of $1.393 billion or $13.80 per hog slaughtered.

Japan was the No. 1 overseas buyer of U.S. pork in 2007, buying 35.1 percent of all U.S. pork exports, Plain said. Mexico was No. 2 at 14.7 percent, Canada was No. 3 at 12 percent and China-Hong Kong was No. 4 at 11.6 percent. South Korea and Russia came in at 8.7 percent and 8.0 percent, respectively.

The other bright spot in the hog market is that pork production continues to get more efficient, he said.

“The number of litters per sow per year have been increasing since 1930 and carcass weights also have been increasing,” Plain said. “The average slaughter weight has been going up one pound per year for the last 50 years.”

Since 1930, Plain said, the United States has reduced sow inventory by 42 percent, but has increased annual pork production by 221 percent.

He said he expects that further improvements in swine genetics will continue that trend for another 50 years: “As far as I can tell, there is no end to this getting better.”