Grimes: Hog prices to fall, profit streak to end
Higher feed costs and an overabundant meat supply could keep U.S. hog producers from a new record of consecutive weeks of profitability, one analyst said.
At the World Pork Expo, Glenn Grimes, University of Missouri livestock economist, told a group of hog producers the record for consecutive profit is 33 months.
"We might not break it, mainly because of a large amount of total meat supply," Grimes said. "We have seen 27 months of profits, and we think there will be four more months, so we'll get close."
For live hogs, Iowa-southern Minnesota basis, Grimes estimated prices averaging lower into the fourth quarter. For the second quarter, Grimes forecast prices between $46.00-$47.00 per hundredweight, $42.00-$45.00 for the third quarter, and $37.00-$40.00 in the fourth quarter.
Grimes suggested the high price for the year may have been set this week when $4.00 per hundred weight was added to the western Corn Belt hog prices on Wednesday.
"I see hog kills going down next week, with hog prices jumping $4.00, but meat prices going up only $1.00, that won't work for a meatpacker," Grimes said. "I see this pressuring next week's prices, not too low, but I think we have seen the year's high."
Yet another problem with prices is the expected higher cost of production. Compared to others around the world, the US producer can raise hogs cheaper than all countries except two. With increased uses for corn such as ethanol, experts see the pork producer's feed costs going up significantly.
Grimes sees the current price of production at $39 per hundredweight, jumping to $44.000-$45.00. "If the price of corn goes up $1.00 a bushel, as some have mentioned with ethanol demand, the producer's costs will go up. This would be the biggest change since the late '90's.
Another factor creating a dimmer price outlook is an expected slowdown in annual pork demand, due to competition from other meats.
For January through April, U.S. demand for pork, beef, poultry and turkey is lower than a year ago, Grimes said.
Though domestic demand has dropped, the 2006 U.S. meat consumption per capita is estimated at 5.4% more beef, 3.1% pork, 2.3% chicken, and 1.3% more turkey, according to USDA statistics.
"Last year, meat consumption was a record high. If vegetarians are making headway, it's not very much," he said.
Meanwhile, Grimes suggested the number of Canadian hogs coming to the U.S. would decline in the coming years, due to a lower value of the Canadian dollar compared to the U.S. dollar.
Meanwhile, exports continue to be the bright spot for the industry, Grimes said.
For the first quarter of 2006, exports are up 22%. In 2004 and 2005, U.S. pork exports were up 20%. This has occurred with Japan, No. 1 buyer of U.S. pork, purchasing 7% less this year. U.S. pork exports have increased to Canada, Mexico, Taiwan, Russia, S. Korea, and China.
The growth in exports since 1996 has added $6 billion to the U.S. pork industry Grimes estimated.