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.
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.
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.