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Winter to chill hog prices, economist says

DES MOINES, (Agriculture.com)--The winter months can be the worst time of the year for hog prices. This year is expected to be no different. Seasonally, the winter fundamentals include the highest of the year hog slaughter amounts and heavier weights. This results in high pork supplies and lower hog prices.

To be sure, history shows that hog producers have lost money in three of the last four years, during the winter months. Last year, a 265 lb hog, on average, was worth $56.00 per live hundredweight, while the producer’s ‘break-even’ price was $58.00 per live hundredweight.

In the last 10 years, records indicate that producers were profitable three times in the month of December, two in January, and five times in the month of February.

“Bottomline is, the producers lose money in the winter, because we, as a country, have a lot of hogs to sell in those months,” Ron Plain, professor of Agriculture Economics at the University of Missouri.

In September, the USDA projected the number of hogs and pigs on U.S. farms increased 1% from a year earlier. As a result, the market looks at this data with bearishness, as it points to larger winter supplies.

This Winter

Due to demand uncertainty and high prospects for a U.S. recession-like consumption atmosphere, winter hog prices are expected lower than the 2011 summer highs of the upper $70s. With producers needing at least $68.00 to break-even, this winter’s average hog prices are seen around $60 per live hundredweight, Plain says. “We hope the producers can make enough money in the spring and summer to cover the losses in the winter. The major challenge for the 2011-2012 winter months will be feedcosts,” Plain says.

As a result, the U.S. livestock and poultry numbers have been down- sized significantly this year from increased corn prices and severe droughts. In fact, the USDA sees 4% less feed usage in the 2011-12 corn marketing year that runs between Sept. 1-August 30. Normally, less feed usage means higher supplies of corn. However, increased exports of corn, dried distiller grains and ethanol are keeping the corn market underpinned.

Forward-Pricing Corn

Over the years, the U.S. livestock producers have been getting better at pricing ahead their feed costs, namely soymeal and corn. However, the grain futures prices have stayed sharply higher so long that it’s harder and harder to escape ‘“out of this world’ feed prices.

What hog producers were feeding in August and September was bought earlier on. They didn’t pay $7.00 per bushel for it. However, when cash and futures prices got above $7.00 this year, the producer probably had to pay that price and will be feeding that expensive corn this winter,” Plain says.

Upside For Hog Market

Record prices in the 2011 summer months created optimism for producers. In addition, the USDA is projecting record pork exports at 4.9 billion pounds. Even though half of the world’s hog population is in China, signals indicate that country will buy more foreign pork in the future. Currently, China is the fifth largest buyer of U.S. pork, behind Japan, Mexico, South Korea and Canada. In 2011, China has bought the second most U.S. pork it ever has, second only to 2008. ”As its economy improves vs. the past ten years and the Chinese consumer becomes more affluent, pork demand goes up. With more of it consumed compared to all meats combined, pork is the meat of choice in China,” Plain says.

The next challenge for the Asian country is feed supply. “If you are going to raise more hogs, you need more hog feed,” he says.

Weak U.S. Economy

Unlike China, the U.S. consumer is facing a weaker economy. As a result the U.S. demand for meat is uncertain. “Recessions are tough on meat prices,” Plain says. “People have to eat and do so right through recessions. But, they eat more beans, rice and pasta. The U.S. economy is looking weak. If it doesn’t improve, we will most likely see weak meat demand this winter. That could lead to disappointing cattle and hog prices.”

The second biggest concern for this winter’s hog market is the price of corn. The third largest factor that the market will be watching will be U.S. pork exports, he says.

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