USDA’s recent Quarterly Hogs and Pigs Report held little surprise that the US pork industry was expanding, but ironically it was released on the same day USDA forecast a nearly 13 billion bushel corn crop. Combined, the synergy was more pork at lower prices for the consumer, but with more corn on hand, production costs for the producer would be friendly to profit potential.

On the surface it would appear that plenty of corn will be available for hogs, which have little use for distillers’ grains. But the murky market underneath that surface has done little to reveal the new era price trends for corn and soybean meal.

From his vantage point at Purdue, livestock economist Chris Hurt observes that the April to June quarter was the tenth consecutive quarter for expansion of the breeding herd. It has been slowly progressing, helped by larger litters, more sows, higher weaning rates, and more intended farrowings. Those factors will contribute to a 3.2% rise in pork production over the next year, compared to the past year, says Hurt.

Some of that extra pork will be exported, since the export market has kept the pork afloat in the past year. Livestock economists Glenn Grimes and Ron Plain at the University of Missouri say, “Pork exports in April were down 12.4% from a year earlier. For January-April pork exports were down 1.0% from this period a year ago. Pork exports for January-April were up 12.5% to Japan, up 1% to Canada, down 24.3% to Mexico, down 17.4% to Russia, up 7.9% to South Korea, up 31.9% to mainland China and Hong Kong, down 47% to Taiwan, down 33.9% to the Caribbean, and up 6.6% to "other." The big decline for the first 4 months of 2007 was in exports to Mexico which were down over 52 million pounds from 12 months earlier.”

Purdue’s Hurt calculates market values under the $50 threshold for most of the coming 12 month period, “Prices of live hogs are expected to average about $48.50 per live hundredweight over the next 12 months based on 51 percent to 52 percent lean carcasses. Prices for the third quarter are expected to average in the $50 to $54 range. Last quarter prices are expected to drop to $43 to $47. Winter prices may improve some to $45 to $49, with second quarter 2008 prices back up to $48 to $50.”

With those prices, will there be any profit opportunity? Hurt believes prices will be floating about the average breakeven point, and while some producers will be in the black others will be in the red. The saving factor is the expectation for softer corn prices. But Hurt says, “Corn and soybean meal prices could still be dynamic over the next few weeks until the size of this summer's crops become clearer. Each $1 change in corn prices impact national hog production costs roughly $5 per live hundredweight. The estimated corn breakeven prices over the next year given current futures price estimates for soybean meal are $4.18 per bushel this summer, followed by $2.85 in the fourth quarter, and $3.06 and $3.77 for the first two quarters of 2008, respectively.”

Market weights are still hefty, in the wake of expensive feed, but Mike Brumm’s comments at the University of Nebraska’s Pork Central Mike Brumm says producers have adjusted to high feed prices. Hogs in the Upper Midwest are being slaughtered at weights parallel to the past several years when corn prices were lower. “Even with late finishing diet ingredient costs approaching $160/ton, today’s genetics are capable of putting on 1 pound of gain using less than 4 pounds of feed as they grow from 270 to 290 pounds. With feed costing $0.08/lb, feed cost per pound of gain for these last pounds of gain is only $0.32.”

As the pork industry prepares for a breakeven year, Grimes and Plain say there is still a definite cycle. “From late 1999 to late 2000 there were 13 months of growth in demand for live hogs. From late 2000 to late 2001 there was mixed demand action but losses most of the time for 12 months, then there were 17 months of losses. From mid-2003 to mid-2005 there were 26 months of growth. This growth period appeared to be associated with the popularity of high protein diets. Following the 26 months of growth, there were 14 months of losses in live hog demand. For the last 11 months, there has been growth in live hog demand. A part of these fluctuations in demand for live hogs was probably tied to pork exports.”

Summary:
Thanks to the export market and softer prices for corn, the growth in US hog production will bring abundant supplies and friendly prices to the consumer, without pushing too many produces into the red. Breakeven prices may be the best that most producers can muster, which demands a good risk management plan for buying corn and selling hogs in the coming year. With hogs putting on low cost weight, both the producer and consumer should benefit from the current dynamics.