2008 seen as worst year ever for hog producers
All you have to say to a pork producer is "1998" and the most jovial fellow will turn red with rage, or drop his shoulders in a feeling of helplessness. Unfortunately, those emotions may be relived as 2008 may replace 1998 as the worst financial year for pork producers in modern history.
The number one culprit is high feed costs and the second is too many hogs. The current unrelenting climb of corn and soybean meal prices may drive 2008 costs to the highest annual level ever. In addition, there continues to be more slaughter hogs than accounted for in USDA inventory reports, with no signs of moderation.
First, there are too many unexplained hogs. Forecast slaughter at the beginning of the fourth quarter of 2007 was about 4.5 percent higher. Actual slaughter was up almost 9 percent. Where did the extra hogs come from? USDA increased last spring's farrowings somewhat, but there were still nearly 3 percent unexplained slaughter hogs.
The great worry is that there may still be more hogs than USDA has counted in the December update. The December USDA inventory count indicated that slaughter would rise by about 4 percent for the first five months of the year. If USDA has undercounted, slaughter could be 6 to 7 percent higher. USDA indicated that the breeding herd was up by just 1 percent and that winter farrowings would rise by 2 percent and spring farrowings by 1 percent.
Pork supplies are expected to expand by 3 to 5 percent in each of the first three quarters of the year. By the final quarter, production may be about the same as the final quarter of 2007, but that was too much pork. Annual production in 2008 will rise by about 3 percent, too much to sell at profitable prices.
Live hog prices for 2008 are forecast at $46.30, down from $47.10 in 2007. These are based on live weight prices for 51 percent to 52 percent lean carcasses. Prices are expected to average in the very low $40s in the first quarter of the year, rise to the high $40s for the second and third quarters and finish the last quarter with mid-$40s averages. Average prices for 2008 are expected to be the lowest in five years.
Corn and soybean meal futures prices indicate a record high price year. This will mean a record high annual costs for pork producers. Both corn and soybean meal have had higher prices than current levels, but those were spikes that soon moderated. While live hog prices are expected to average $46.30 for the year, costs of production are estimated at $55.60 based on futures prices for corn and soybean meal on January 4, 2008 and adjusted to cash purchase levels. These estimates suggest a loss of about $9.30 per hundredweight, or nearly $25 per head on average for the year. This would exceed the previous worst year in modern history, 1998, with an estimated loss of $6.78 per live hundredweight.
Costs prospects for 2008 at $55.60 are extraordinary. Estimated costs average for the previous ten years was $40.64 per live hundredweight. The previous record annual estimated high costs were $48.93 in 1996. The largest losses are expected in the first quarter of the year, when they could reach $36 per head, and then be around $20 per head for the rest of the year.