Its time to head to the State Fair where you can eat your pig on a stick. Soon it will be time for apple and pork festivals, pork and pumpkin festivals, bacon and broccoli festivals and whatever creative way we can conjure up to sell pork. We’ll quickly be out of the summer grilling season, and soon beef will be replacing pork on the Japanese menu, so let’s take a look at the pork profit prospects heading into fall.

Dr. Atkins, may he rest in peace, did more for the meat merchants than anyone in recent memory. But now that the Atkins Diet is only a memory for the weight conscious, those who have replaced him on the bestseller list are not the least enamored with meat. While the carb cutters still rule, they are not putting red meat proteins back on their meal recommendation list, says Brian Roe, ag economist at Ohio State. He says one of the diet books rising in popularity is pushing organic, free-range, grass-fed, and natural labels for protein. That is not something helpful to the mainstream pork producer.

Something that has helped has been recent history. If hogs remain in the black through October, that will break a record for the longest string of months of profitable pork, dating back to 1979, according to John Lawrence at Iowa State. Keep your fingers crossed. University of Nebraska’s Cornhusker Economics newsletter says the chances for that are good, with profits continuing through the end of the year. “National net cash hog price, extended out using the prices of lean hog carcass futures contracts, indicated on July 31st that the profitable months may continue through the end of 2006. With current corn prices many producers can produce hogs for $40 per cwt live value or on a carcass base, $54 per cwt. Currently, futures adjusted for Midwest basis offer prices at this level or higher.”

The University of Missouri team of Glenn Grimes and Ron Plain say the current strength in the pork market is deep rooted. “Pork demand at the consumer level has grown a little in the last 10 years. The good news for the hog industry continues to be live hog demand, which in 2005 was up 16 percent from 1995. Most of the live hog demand growth is due to larger exports and population growth. Net pork exports in 2005 were up 7.3 percentage points of pork production from 1995. In this 10 years, pork export growth has added about 2.4 billion dollars to producer's income. The pork industry was 16 percent larger in 2005 than 1995 based on pounds of pork produced.”

While that may be the case, and there is no reason to doubt it, many pork producers will be looking at feed cost in coming months and be uneasy about having to compete with ethanol plants for corn. Using Wednesday’s CBOT close, Sept corn was $2.35 and Dec corn was $2.53. With a 30 cent basis, cash corn would be available at $2.05 and $2.23 for corn from now until the end of the year. The Cornhusker Economics newsletter says, “Holding all other costs constant, a $40 cost of production now, translates to a breakeven of $40.85 based on September and $41.59 based on December corn futures prices. The lean hog futures contract offers the producer from $48.73 to $42.30 for September through December, using a -$2.00/cwt. basis. In December this profit margin would be $0.71/cwt. or $1.92 on a 270 pound live market hog. While December Lean Hog futures contracts are positive for producers now, historically they would be lower by the time they close in mid-December.”

The clue to profitability is to lock in feed and pork prices with a hedge. How important is that? Grimes and Plain outline several trends that are not friendly to the market and may be red flags for red ink:
1) Hog marketings have been up 4% and that is higher than expected based on USDA’s last quarterly report.
2) June-July slaughter is 1% higher than expected, and it should have been lower because of the hot weather.
3) Consumer meat demand in the first 6 months was below last year, with pork down 5.3%.

Now, what was that about locking in profits?????

Summary:
The pork market has been swimming in black ink for nearly a record of 33 months, and the immediate trends hints the record will be broken. However, there are some issues about declining consumer meat demand, marketings and slaughter rates higher than expected, and other issues that should concern every pork producer. With corn prices expected to be strong next spring, many producers may be locking in their needs now to lock in profits through the end of the calendar year.