Indiana Pork Producers Bring Home Some Bacon

US - Large losses and a major erosion of equity were the hallmarks of the pork industry in 2008 and 2009, writes Chris Hurt.
calendar icon 15 October 2010
clock icon 3 minute read

Losses averaged near $20 per head each of those years. While live hog prices were about $48 per live hundredweight in 2008, they fell off a cliff in 2009 to only $41. That fall was a result of the world recession and due to H1N1 being identified as “swine flu“ in April of 2009.

As a result of these large losses, pork production dropped by 6 per cent in 2010 and hog prices rose enough to move the industry back to profitability by last spring. While those profit levels have been very good this summer, it will require the positive returns in 2010 and 2011 just to recover the equity losses from 2008 and 2009.

Producers are expected to respond to the current favorable margins by beginning a modest herd expansion this fall and winter.Farrowings are expected to start increasing in the spring of 2011 resulting in higher pork production by the fall of 2011. Higher pigsper litter will also contribute to an increase in 2011 production of 2 per cent.

Pork exports remain a bright spot. This year the pork industry will export 19 per cent of its production, and is expected to reach a record 20 per cent of production in 2011. Just two decades ago, the industry only exported 2 per cent of production.

In contrast, corn producers in the US exported 29 per cent of their production 20 years ago and today that is down to only 15 per cent. Both the US. chicken and pork industries export a higher percentage of production than do corn growers.

Hog prices this year will average around $55 and near that level in 2011. Cost of production had been in the higher $40 for much of this year, but currently have moved back above $50. For next year, costs are expected to be in the very low $50s.

Prices are expected to drop seasonally this fall and winter to $53 and then average $56-$57 next spring and summer.

The end of this phase of profitability may come in the last quarter of 2011 if herd expansion begins this fall and winter as expected. Prices in the fall of 2011 and the winter of 2012 could be in the higher $40s with costs above that level. Given the rise in corn prices late this summer, hog producers must be cautious about expanding until a more assured corn supply can be established. Unfortunately that may not be until the 2011 US. crop is produced.

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