Pork industry 'walking a tightrope'
With the pork industry walking a tightrope between high hog prices and high feed prices, consumers begin seeing the consequences -- record high prices for pork.
“Producers will be receiving record-high prices for their hogs, but also paying record high prices for feed,” says Chris Hurt, a Purdue University Extension economist, in a university report. “The outlook is in balance right now as hog prices are expected to be high enough to cover feed prices. However, the consequence of losing that balance could have extreme financial consequences on producers if consumers balk at high pork prices or weather threatens 2011 crops.”
Why are corn and hog prices moving in the same direction? Hurt says one reason is that meat supplies have been sharply reduced over the past four years.
“Hog producers had a major erosion of equity and have little ability to continue production if feed and hog prices get out of balance,” Hurt says. “If feed prices increase, there is a perception that pork production will almost immediately drop thus increasing hog prices.”
Another reason Hurt cited is that United States and world food prices are all moving higher.
“We are in a period of generally rising prices, and that means inflation will tend to increase prices of all food products,” he says. “Different products will move up at different rates depending on their individual supply and demand situation, but inflation raises ‘all ships.’ Almost all commodity prices are currently increasing as a result of strong demand relative to supplies, but perhaps additionally stimulated by accommodative monetary policy by the U.S. Federal Reserve.”
There are reasons for pork producers to be worried that the delicate balance between high hog prices and high feed prices could be upset, Hurt explained.
“There is a concern that consumers will back away from pork consumption as grocery store prices shoot up this spring and summer. In order to pay $7 or more for corn, live hog prices at times will have to move toward $75 per live hundredweight this spring and summer, up from the current price in the low-$60s. Will consumers bear this financial burden? “
The weather could also play a role.
“There is a second concern that corn prices will rise above $7 this spring and summer, and/or that the anticipated $1.50-a-bushel drop in cash corn prices from this summer to fall does not develop due to adverse growing conditions,” Hurt said.
“Needless to say, pork producers are deeply concerned because an imbalance between costs and hog prices means huge financial risks. They are anxious to see how this era will play out and are concerned for the survival of their businesses if costs move sharply above hog prices. In that case, they may fall off the tightwire with no safety net,” Hurt said.
In 2007, the animal industries were producing 222 pounds of meat and poultry per capita. This year production will be about 207 pounds, a 6% reduction. The reductions have come after enormous producer losses in 2008 and 2009. Hurt commented that with smaller supplies and a recovering world economy, consumers will face pork prices forecast at record highs of $3.36 per retail pound, an 8% increase over 2010.