Hog Markets Have Producers Adjusting Inputs

Hog Markets Have Producers Adjusting Inputs

World Pork Expo participants focus on production, marketing and input management to strive to capture higher pork profits

Managing production and marketing with an eye toward turning a profit is one topic on the minds of producers attending the World Pork Expo. It runs through Friday at the Iowa State Fair Grounds in Des Moines. Hog markets this year are unfolding entirely differently than last year when solid export buying from South Korea and China boosted prices to lofty levels.

This year's spring hog price rally that's normally linked to Easter ham buying largely failed to materialize. Despite an early spring across much of the country, grilling season was slow to spark to life. Over the 10 weeks from March into mid May hog futures eroded 13%.

Pork producer Gary Asay of Osco, Ill., says expansion plans for pork producers will likely remain on hold.

Then prices rebounded. Round figures, June hog futures advanced 10% during the last week in May and first week of June.

USDA's March Hogs and Pigs Report pegged our March 1 breeding herd inventory at 5.82 million head, up 1% from a year ago. March-May farrowing intentions were down 1%. June-August farrowing plans were down 2%.

Gary Asay, an Osco, Ill. pork producer believes producers will continue to hold the line on expansion, especially given spring price performance 

"I don't think the recent rally will cause producers to rethink plans," he explains. "Most producers tend to think longer term.

"Failure of the spring rally to materialize likely dampened some of the enthusiasm for expansion that might have existed back in February," he explains. "Back then, summer hog futures were well over $100. We're currently struggling to get back to $96."

Managing inputs. Old-crop corn supplies are squeaky-tight. Corn planted acreage could top 95 million. A 164-bushel U.S. average corn yield remains a possibility. Farmers could potentially turn out a 14.25 billion bushel corn crop.

Pricey old-crop corn has potential to give way to considerably lower prices for new crop. Meanwhile, managing feed supplies is a challenge.

"Currently many producers are looking for feed wheat to get them through to new crop corn," says Asay. "Early planting has some producers hopeful to get new crop earlier. I know many producers would be glad to adjust rations back to corn and soybean meal vs. various byproducts."

John Weber, a Dysart, Iowa producer, thinks corn prices have not yet dipped low enough to generate widespread interest in expanding pork production due to lower feed costs.

Competition at retail is always an issue. Tuesday's pork cutout was $82.81 down about 6% from a year ago. In August 2011, pork belly primals peaked around $158. Tuesday's bellies ran $98.85. Yet retail bacon prices remain in the stratosphere.

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Retail meat prices are sticky. They're slow to rise with wholesale prices because retailers don't like to whipsaw their customers on prices. They're even slower to come down.

Grocers look at various departments in the store as profit centers. It makes no difference to the general manager whether the meat department generates its margin from beef, pork, chicken or processed products as long as the department turns in the prescribed amount of earnings.

Some pork producers would like to see retail pork prices more responsive to price changes for hogs and wholesale primal cuts. But influence on retail prices from the production side of the business is limited.

"Beef prices are working higher and chicken prices also working somewhat higher," notes Asay. "Many retailers are making profits in the meat department from pork. Many of them did not feature pork in specials for Memorial Day. Some trade talk suggests retailers may run more pork features for Father's Day and the Fourth of July.

Weber notes some retailers got caught short on bellies a year ago. Bacon lettuce and tomato sandwich season is coming in a month or so. Demand for bacon could rise. That would help draw down some of the big cold storage stocks and help lift pork complex prices.

TAGS: USDA
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