By Julie Douglas and Jeanne Bernick
Spring Pork Price Recovery Threatened
Live-hog and futures prices fell in recent weeks as gas prices soared, budgets threatened to furlough meat inspectors and global markets reduced exports, says Chris Hurt, Purdue University Extension ag economist.
Economists and producers had been hopeful that U.S. prices would return to at least break-even this spring, but a $9-per-hundredweight drop in live-hog prices and a $7.50-per-hundredweight drop in futures prices since February has dampered some of the optimism.
"The current outlook suggests the industry will have to wait until late summer for break-even conditions when feed prices can decline if more normal corn and soybean crops develop," Hurt says. "With the more cautious tone, hog prices are expected to only average about $66 in the second quarter, with costs of production near $70 per live hundredweight."
Price weakness comes from demand concerns, Hurt says. The first of those concerns is the weakened buying power of U.S. consumers.
Unusually high gasoline prices for this time of year and increased payroll taxes since Jan. 1 have reduced the buying power of American consumers.
Second, Hurt says the potential reduction in federal meat inspectors as a result of automatic spending cuts mandated by sequestration could mean animal-processing plants would operate fewer days of the year. If plants shut down some days, they wouldn’t buy hogs, thus weakening hog prices.
The biggest problem has been with pork exports, which account for 23% of total U.S. pork production. In February, Russia banned imports of U.S. pork because of ractopamine concerns. Then China announced they were going to more closely check imports of U.S. pork for ractopamine. Last year, China’s pork purchases from the U.S. represented 3.4% of total U.S. production.
In addition to loss of Russian and Chinese markets, the value of the Japanese yen has fallen by 12% so far this year and by 16% since October. The decline means U.S. pork prices are higher in Japan by similar percentages. Japan bought 6% of the U.S. pork production volume in 2012, making the country the largest U.S. pork buyer.
The market problems have created a less-then-welcome outlook for hog producers.
Soybean Stock Levels Push Prices Higher
Smaller soybean stocks are setting the price for the 2012/13 marketing year. The 2012 soybean crop was 79 million bushels smaller than the 2011 crop, meaning the current marketing year supply is 121 million bushels (3.6%) smaller than the previous year.
Consumption of U.S. soybeans during the first quarter of the marketing year, however, was record large and the pace of consumption remained high during much of the second quarter, says Darrell Good, University of Illinois economist.
Watch South America. The rapid pace of consumption reflects continued strong export demand for soybeans and soybean products and the drought reduced South American harvest in 2012. The market was willing to let consumption proceed at such a rapid pace in anticipation of a seasonal slowdown in export demand during the last half of the marketing year when South American supplies become more abundant.
"With prospects of a sharp rebound in South American production to a record level in 2013, it has been anticipated that the slowdown in consumption of U.S. soybeans would be sharper than normal this year and that yearending stocks would be maintained at pipeline levels," Good explains.
- Spring 2013