All right boys, what am I bid for a good pork chop? Who’s got a five dollar bill? Hey, there I’ve got $2, gimme $3, now $3, $3.50, all right bid ‘em up, now $4, $4, got it, now $5, bid ‘em up, all up, $5, now $6, anyone at $6? Sold at $5 a chop, and that’s a steal!

Thieves are stealing bronze cemetery urns, copper wiring out of houses under construction, and gasoline as often as they can haul it off. But if they were smart, they would be trucking off hogs and selling them to international buyers for tons of cash. Purdue economist Chris Hurt says hogs are not only cheap in the US market, but compared to the foreign market, where foreign currencies buy more dollars than they used to, pork is a bargain.

In his latest newsletter, Hurt says the low price of pork is a subsidy to US and foreign consumers. With pork prices averaging $2.85 a pound this year and last year, pork producers have absorbed $1.4 billion in losses that consumers should have paid in value. It is all a function of the value of the dollar, which has benefited corn and soybean producers who have sold one billion bushels of beans and over two billion bushels of corn to the export market because of the low valued dollar. Through the month of April, pork exports expanded 52% compared to last year. Interestingly, Hurt says pork production is up 11%, but only 6% more pork has been available to the domestic market because foreign buyers are taking the rest. Over one hog in five is destined for the overseas market. Hurt says he believes the global market will buy the increased US production until pork prices in the US begin to “move sharply higher.”

When will that happen? Hurt says production has to decline, and the Quarterly Hogs and Pigs Report 10 days ago indicated sow slaughter was up 1%, farrowing intentions were down 2% for this quarter and down 4% for next quarter. With the increased slaughter, prices will remain weak, but once the glut is through the packing houses, Hurt says prices, “will improve very late this fall and winter and go wildly higher by next spring and summer.” He says the world is waiting to buy the last of the cheap pork.

If you are trying to pay off a hog house and still meet operating expenses, Hurt predicts pork prices to be in the low $60’s by winter and mid $70 by next spring and summer. With current corn and SBM prices, cost of production for farrow to finish producers is in the low $60’s. He says profits may even accelerate if CRP is released, if ethanol supports are cut, and if weather is favorable, all of which will reduce feed costs.

Hurt’s assessment of the Hogs and Pigs report is corroborated by Iowa State livestock economist John Lawrence, who said he was surprised by the liquidation of the sow herd, because of the higher sow slaughter that had been seen in recent months. In this monthly newsletter, Lawrence said even with farrowing intentions down, the 9.4 pigs per litter is preventing a more rapid decline in hog numbers. He is expecting production to remain above year earlier levels, until it levels off next January and begins a decline into the spring. His prediction for live hog prices is $55-$58 per cwt next January through March, and $62-$65 in the second quarter of the year. He feels the declining supply of hogs in 2009 is a function of the eroding profitability from high feed costs.

But intended declines in production will be bittersweet to many producers, since the June 2009 lean hog contract closed over $100 last week, the first time that plateau has ever been reached. Glenn Grimes and Ron Plain at the University of Missouri agree with Lawrence in their weekly Hog Outlook that hog slaughter will drop slightly below year ago levels in the first quarter of the year and stay down for an 18 to 24 month period.

Summary:
If pork producers can afford to skimp for the next six months, they’ll be in the money come 2009 when hog prices strengthen as production declines. High feed costs are forcing the issue, but the futures market sees the outcome and hog futures are in record territory. Helping the current demand is the value of the dollar, which has spurred foreign buyers to help themselves to inexpensive quantities of pork, and they will continue to do that as long as foreign currencies are at a premium to the dollar. That will not only help feed foreign consumers, but will help keep additional burdensome supplies of pork out of the US meat case, where prices remain at bargain basement levels.