March 2003
Pork producers can’t wait to put low hog prices behind
them, but the market this year has been slow to respond.
Help should be on the way, although the spring rally may
not be as strong as many had been hoping for.
Producers are weary of losing money. In 2002, prices for
51% to 52% lean hogs averaged about $35 for the year and
estimated costs of production were $38.60 per live hundredweight.
This meant losses reached an estimated $9.60 per hog. The
largest losses came in the final quarter of the year when
they were over $8 per live hundredweight, or $21 per head.
The situation is somewhat better in the first quarter of
2003 with prices expected to average near $36 and losses
trimmed to an estimated $3.50 per hundredweight.
The disappointment for prices in the first two months of
2003 stems from a larger supply of hogs than had been expected
based upon USDA inventory reports. Pork production in the
first quarter of the year was expected to be only slightly
higher than the same period last year. However, in January
and February, pork production has averaged 2.4% higher.
Some moderation in slaughter rates can be expected in March
such that the number of hogs coming to market will be closer
to even with year-previous levels. By spring, hog supplies
could be down around 2% based upon last fall’s farrowing
numbers.
The Monthly Hogs and Pigs report is also providing statistical
support for slaughter supplies to be lower in the spring.
The size of pig crops in October, November, and December,
that will represent spring slaughter, were down over 2%.
Hog prices should be on the verge of a spring rally that
could take live hog prices from near the mid-$30s at the
start of March to the lower-$40s by the end of May. If supplies
drop as much as 2% for the spring quarter as USDA reports
suggests, prices could average near $43, however, a more
realistic objective right now is an average of $40 for the
second quarter.
Summer supplies will be drawn from sows farrowed this winter
when producers said they would reduce numbers by 1%. If
producers follow through, summer supplies would be only
modestly lower and hog prices for the summer quarter would
average a bit under $40.
Data continue to point to a breeding herd that is dropping
slowly. Farrowing intentions for the spring have been estimated
at down 3%, and recent monthly reports have shown the number
of females bred in November, December, and January to be
down by 2.7%, thus helping to confirm this magnitude of
reduction. If so, pork supplies could continue to drop modestly
into the final quarter of 2003 with prices averaging in
the mid-to-higher $30s.
The best news for now is that losses are likely to nearly
be over as the spring price rally sets in. However, prices
cannot be expected to be strong enough through the year
to provide much more than a breakeven level on average.
Production costs may drop from near $40 per hundredweight
at the start of 2003 to closer to $38 with lower corn costs,
assuming near normal corn yields this fall. Hog prices on
the other hand are expected to average about $39 for the
year. After the large losses experienced last year, it appears
that a breakeven year in 2003 will, unfortunately, not enable
producers to recovery from those losses.
So will the spring price rally be enough? It will be enough
to get back into a profitable environment, but a breakeven
year in 2003 will be of limited value in helping producers
climb out of the financial hole they find themselves in
from losses experienced over the last 12 months.
Chris Hurt
Purdue University
March 3, 2003
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