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Margins of profitability for U.S. hog producers to narrow, analyst says

Agriculture.com Staff 04/03/2006 @ 10:09am

Because of increasing supply and estimated higher feed costs, U.S. hog producers could see a 26-month run of profitability vanish, one livestock analyst told Agriculture Online on Monday.

John Lawrence, Iowa State University, said modest expansion has sparked 26 months of profitability in the hog industry, but red ink could show up in late 2006 and run through 2008.

If that profit streak lasts until August it would tie the longest profitability run that occurred from December 1976 through August 1979.

Depending upon the month of August, this year's profit streak may be able to tie the longest record, but not beat it, Lawrence said.

"The next real threat for profitability will come around August or September," Lawrence said. I would encourage producers to get their risk management strategies in order."

For the 2006 fourth quarter, Lawrence sees hog prices below break-even of $42.00 per live hundred weight (280 pounds).

"Plus, if fewer corn acres are planted this year like the USDA is estimating, feed prices could impact profits by the end of the year," Lawrence said.

For the second and third quarters of 2006, Lawrence sees live hog prices averaging $44.00-$47.00 per hundredweight, and the fourth quarter $39.00-$42.00. To start 2007, hog prices could dip between $38.00-$41.00.

USDA, in its hogs & pigs report last Thursday, estimated the breeding herd up 1.4% from a year ago, creating 84,000 additional sows in the U.S. If the sow increase is realized, 1.5 million more hogs would be produced this year compared to 2005.

With hog supplies inching upward, and uncertain demand, Lawrence said hog prices would be tested in the next six months.

"Avian flu concerns are backing up poultry exports around the world, backing it up in cold storage. The U.S. is increasing poultry production by 4% or more. So, some of the cheapest chicken in 15 years is on the market. That is stiff competition to pork and beef," Lawrence said.

If the bird flu reaches the U.S., Lawrence said the impact on pork would depend on how the consumer reacts.

"Consumers could turn away from poultry and choose more pork, but if it just backs up more cheap protein it would be a negative to pork prices," Lawrence said.

The breeding herd, up 1.4% from a year ago, creates 84,000 additional sows in the U.S., producing 1.5 million more hogs this year compared to 2005.

Meanwhile, Lawrence said there is evidence that "old-school" expansion is occurring in the hog industry.

"This is when someone just adds a few more sows, or adds one more farrowing room with a few more farrowing crates to turn pigs out faster," Lawrence said. "What use to take 14 days to fill a finishing shed may now take 10 days. It's a gradual expansion."

Because of increasing supply and estimated higher feed costs, U.S. hog producers could see a 26-month run of profitability vanish, one livestock analyst told Agriculture Online on Monday.

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