Hog outlook better

Hog outlook better

- Pork producers face second year of losses, but situation improving. - Pork Board launching summer promotion. - Chicken markets have

Hog outlook better
THE market outlook for pork producers for the rest of the year is terrible, but the terribleness is, at least, getting better.

Producers have lost $32.36 per head on their hogs this year (January through May), setting up the fourth worst year in the industry's history (Figure), according to Shane Ellis, who maintains an Iowa-Minnesota profitability series at Iowa State University.

However, he told Feedstuffs that the overall projected loss for this year is $22.89 per head, which suggests decreasing costs as new-crop corn kicks in from now until the end of the year.

Furthermore, if new-crop corn falls into a $5/bu. price range, as futures indicated last week, returns will begin to get back into the black in the first quarter of 2014, he said.

Other sources agreed, offering pork producers heading to the 25th World Pork Expo in Des Moines, Iowa, this week less terrible news than they've been hearing in the past.

The number-one question will be the corn and soybean crops, which are behind schedule on planting, according to Steve Meyer, head of Paragon Economics.

Late planting implies a late harvest, and with a late harvest, frost becomes an issue, he said.

At the same time, experience shows that it's not so much the acres planted as the acres harvested and the yield, he said, which means that record-large crops are still entirely possible — and would bring down producers' costs of production quite rapidly.

Next comes pork demand, Meyer said, noting that there's a split in the outlooks for domestic versus export demand (Table 1).

Domestic demand has held fairly well and may start improving even more on positive developments in the U.S. economy, he said. Household income and the housing market are finally showing signs of recovery, and consumer confidence is strengthening, he added.

Indeed, household income increased 0.7% in April and, although still below the pre-recession level, is now over year ago, according to government data. This indicates that consumers can now deal with the tax hike they took at the beginning of the year, Feedstuffs sources said.

Home prices surged in the first quarter at the fastest pace since before the recession, and March home prices were 10.2% higher than last March. The Conference Board reported that consumer confidence increased seven points in May to a five-year high.

Furthermore, consumer-level beef prices are record high, and shoppers are getting sticker shock from chicken prices after being accustomed to lower-priced chicken, Meyer said. So, competitive meat prices and economic improvement will be supportive to pork demand this year, he said.

He added that pork supplies in cold storage are record large (Feedstuffs, May 27) due mainly to the significant slowdown in exports, which have been stymied by China and Russia announcing bans on ractopamine use and by the weakness of the Japanese yen.

Still, Meyer noted that stocks represent just 1.5 weeks of production, so, if stocks are kept in perspective, storage is not as worrisome as some think, and an increase in pork buying activity could take those stocks down fairly fast.

That activity could start this week as the National Pork Board launches a domestic marketing promotion for which it allocated $3 million in supplemental funding at its meeting in March (Feedstuffs, March 11).

Board vice president for domestic marketing Ceci Snyder told this column that the promotion will position pork for its value and versatility, with drive-time radio spots that encourage people to stop at supermarkets on their way home from work to buy pork for dinner that night.

The promotion also will have online messages and point-of-sale materials, she said, adding that retailers have been "very receptive."

Ron Plain at the University of Missouri echoed Meyer's outlook and said slaughter will be relatively stable going forward, although increased weights will bring in increased pork production. He said he's "confident" in pork demand for the rest of this year.

Given decreasing feed costs, losses will shrink.

This sets up a good situation for producers in 2014, Plain said.

Price projections from Plain and Meyer, who does market forecasting for the Pork Board, are shown in Table 2.

The hog markets were down 39 cents to up $3.07 last week to $90.35-93.29/cwt. on a lean carcass basis across the Corn Belt last Thursday, prices equivalent to a $68-70 live cash hog market and 10.6% higher than last year at this time.

Prices were within a couple of dollars of breakeven.

Hog futures closed last Thursday at levels that would confirm Ellis' forecast: Producers should break even in the June-to-August period, with a sharp drop in prices for the rest of the year but then with a relatively fast jump into profitability the first of next year that will hold in the black through the rest of the months on the board.

Elsewhere in the livestock and poultry markets last week, cattle did not trade in sufficient volume through Thursday to establish prices and, at week-before levels, were $124.00-126.00/cwt. north and south on the Plains, 2.9% higher than year ago.

The Choice cutout finally slipped and was down $2.82 after four straight weeks of setting record wholesale trade highs. The cutout was $208.55/cwt., 5.7% more than year ago.

Action in both the feeder and live cattle futures last week suggested that too much negative news had been factored into the futures that was being overcome, sources said.

Beef packer margins give packers plenty of reason to buy cattle, and feedlot placements can't continue to match the high levels of March and April as feeder supplies tighten up, especially as pasture conditions improve, Dennis Smith at Archer Financial Services noted in an evening wire.

It may be that the trade will begin shifting its focus from beef prices and demand to tight supplies, he said.

The chicken markets were mostly unchanged except for breasts and breast meat, which experienced normal post-holiday weakness, although supplies that were accumulating early in the week were getting cleaned up late in the week, sources said.

Chickens were unchanged at $1.12-1.17 and $1.07-1.13/lb. in the eastern and midwestern regions last Thursday, 30.9% higher than year ago.

Breasts were unchanged to down 7 cents at $1.30-1.34/lb., 36.1% more than year ago, and breast meat was down 13-15 cents at $1.94-2.02/lb., 60.3% over year ago.

The egg markets fell 18 cents to $1.13-1.17 and $1.04-1.06/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 9.5% more than year ago.

Sources said prices got so high earlier last month that foodservice and retail demand and demand from Mexico "dried up." Consequently, supplies accumulated, and prices were unable to hold, sources said.

 

1. Domestic and export pork demand

 

% change from

 

% change from

Year

previous year

Month

previous month

-Domestic pork demand-

1999

0.4

March '12

0.9

2000

-0.2

April '12

-4.0

2001

-0.7

May '12

1.9

2002

0.3

June '12

-6.5

2003

-1.0

July '12

-0.8

2004

0.6

August '12

3.0

2005

-3.8

September '12

3.1

2006

-3.7

October '12

1.1

2007

1.9

November '12

1.9

2008

-4.0

December '12

-1.2

2009

1.4

January '13

5.1

2010

-1.0

February '13

-0.9

2011

1.1

March '13

2.5

2012

-0.5

 

 

-Export pork demand-

1999

2.0

March '12

-8.0

2000

8.4

April '12

-3.7

2001

20.9

May '12

0.6

2002

-7.5

June '12

5.4

2003

9.6

July '12

-2.7

2004

41.0

August '12

-11.3

2005

16.3

September '12

-11.6

2006

7.9

October '12

-5.5

2007

2.3

November '12

-12.6

2008

45.7

December '12

-17.3

2009

-19.2

January '13

-17.3

2010

25.7

February '13

-16.1

2011

29.3

March '13

-21.6

2012

-3.0

 

 

Source: Ron Plain, University of Missouri.

 

2. Hog prices ($/cwt.)

Period

Meyer

Plain

USDA

2013

Quarter 1

82.72

79.06

59.03

Quarter 2

89.50

85.00

60.00

Quarter 3

90.00

87.00

62.00

Quarter 4

81.00

78.00

54.00

Year

86.00

83.00

59.00

2014

Quarter 1

83.00

78.00

58.00

Note: Meyer and Plain use lean carcass basis; USDA uses live cash hog market basis.

Sources: Steve Meyer, Paragon Economics; Ron Plain, University of Missouri, and U.S. Department of Agriculture.

 

Volume:85 Issue:22

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