While the grain markets have rallied in the past year, and beef values are climbing, the pork market has not shared in the good fortune of other Cornbelt commodities. Profits have been good for several years, but are diminishing with lower market prices and higher production costs. But this is a complex economic equation.

Attendees at the recent Midwest Swine Nutrition Conference heard from University of Missouri livestock economist Ron Plain present his outlook on the economics of pork production. Plain says the story begins with the bio-fuels industry, which he calls the most significant development in US agriculture in the past 25 years. Seven years ago, the ethanol industry used only 6% of the corn crop, but that will increase to 26% for the current year, which brought a large increase in corn prices, and Plain says that caused a large increase in corn acres this year with an expected shift toward soybean acres next year. He believes the traditional stair-step trend for corn prices now has corn making a significant upward jump to the next level.

As corn prices move higher for pork producers, ethanol plants are producing distillers dried grains (DDGS), which has benefits and detriments, “The protein, fat, fiber and mineral content of a pound of DDGS are approximately three times that of a pound of corn. The energy level of DDGS is comparable to that of corn. Because of its high fiber content, DDGS has seen limited use in swine rations.” As the supply of DDGS grows, its price declines, and it is now priced under corn.

Although DDGS provides a high protein ration, the choice remains with soybean meal, and Ron Plain says its prices have followed soybean prices upward and USDA anticipated them to average $200 per ton.

Pork production has increased annually for the past 5 years according to USDA estimates. There is a larger breeding herd, litter rates have climbed, market weights have increased, imports have expanded, and that means there is more pork available per capita. Exports have expanded for 15 years, but tailed off this year as Mexico dropped out of the buying mode.

Although exports have fallen, 85% of US pork is consumed domestically, but its popularity in the supermarket depends on the prices of other meats. Plain says the outlook for beef is bright because of low supplies, consequently pork demand should be quite clear. US citizens are eating more meat as a whole, helped by a strong economy and low unemployment. Plain says his calculations show pork, beef, and turkey demand all up for the year.

Hog slaughter for 2007 is estimated by plain at 107.7 million animals, up 3% from 2006, but that 2008 slaughter will be 109.7 million, a nearly 2% rise. That is due to increased farrowings, increased sow productivity and that 2009 would see slaughter at 110 million head. Plain says 2007 market prices will be close to $63.50 this year, falling to $62 next year, then back to the low $60’s in 2009 for typical barrow and gilt prices.

Summary:
Pork production has continued to climb in the wake of higher feed costs and for the coming years, prices will be parallel to the cost of production. Corn prices have reached a higher plateau, soybean meal prices have followed corn prices up, making production costs higher. Exports have fallen for the first time in many years, but should recover, and total demand should remain strong with good US consumer response.