Michel Rieu, director of the economic district of the French Pig Production Institute (IFIP), was starting to smile again — just before summer, French pig prices increased enough to cover production costs.
The trend of farm restructuring will nevertheless go on. And some not-so-good news, as we report from the French annual international livestock show (SPACE) held mid-September in Rennes: The announcement of a new price reduction.
Pig price weakness began in Germany at the beginning of September and spread all over Europe. As the last part of the year is classically slower than summer times due to French habits of summer “grilled meat,” Rieu, an economist, saw no real hope on the price front before the second half of 2010.
While it is difficult to forecast any price improvement in the short term, “We can hope for (increases) next year as the pig production is also slow in North America.”
Losses, though widespread, were not present everywhere in September, however. United Kingdom producers were profitable as of late September, a consultant said to us over lunch recently at a major regional pork meeting.
Let’s hope that what seems to be occurring in America spreads to the rest of the world soon. “Hog producers may be seeing the first signs of the financial dawn,” says Purdue University, USA, economist Christopher Hurt. However, before profits are achieved in the spring of 2010, there will be another six months of losses, but the magnitude of those losses should decline over time.
The components of the dawning are coming from both supply and demand factors, he notes. On the supply side, the September 25 the U.S. Department of Agriculture’s Hogs and Pigs report revealed slightly larger reductions in the herd than had been expected. The breeding herd was down 3.1 percent over the past year compared to an anticipated 2.5 percent. Pigs under 60 pounds were down 3.7 percent compared to an anticipated 1.5 percent reduction.
Improving demand will likely have more positive implications for hog prices than reduced supply. Many economists believe the recession is over. It is widely anticipated that GDP numbers for the third quarter of 2009 will be positive, signaling the end of this long and deep recession-the U.S. estimate was be released on October 29, after this issue went to press. While the recovery in the economy in many nations will be slow with unemployment staying high for a while, positive growth numbers will tend to help meat consumers “free up” spending somewhat, Hurt says.
Also positive for pork consumption will be that lower pork prices consumers are expected to decline. In the first-half of 2009, U.S. pork prices averaged $2.95 per retail pound compared to $2.87 in the first-half of 2008. It was very difficult to sell larger U.S. pork supplies at higher prices early this year. In July and August, retail pork prices finally fell below their year-previous levels. Lower pork supplies with lower retail prices will strengthen hog prices and result in a higher portion of the retail pork expenditures flowing back to producers.
Exports are expected to strengthen as well. World economic recovery is expected to have more upside potential than the U.S. recovery, good news for pork producers worldwide. For the U.S., current USDA estimates are for pork exports to be up 9% over the next nine months compared to the same period a year earlier.
With some reduction in domestic production and greater exports, per capita pork availability in the U.S. will be down about 3% to 4% in the coming nine months. This, along with lower U.S. retail pork prices, improving incomes, and improving consumer attitudes will provide the basis for strengthening hog prices.
Hog prices are expected to average in the high $30s on a liveweight basis for the final quarter of 2009. Winter prices are expected to rise to the low $40s, and then move still higher into the mid-$40s for second quarter averages. Next summer’s prices are expected to rise into the high $40s for an average and the low $50s for weekly highs.
Lower production costs
Lower corn, soybean meal, and energy prices will be helpful in reducing losses this fall and winter, again a boost to producers wherever they raise pigs. Estimated costs for this time period are in the $44 to $46 range. Costs may rise to $45 to $47 for the spring and summer of 2010 using current adjusted corn and soybean meal futures prices.
Given these costs and the hog price outlook, farrow-to-finish producers are expected to lose about $15 per head this fall and $7 per head in the winter. Margins would turn to small profits of about $2 a head in the spring and $12 a head in the summer. For all of 2010, current estimates are for about $3 per head of profits versus losses of $22 per head in 2009 and $17 of loss in 2007.
Just as the world economic slowdown helped plunge the animal industries into recession more quickly than the crops sector, the world economic recovery may help lift the animal industries out of recession more quickly than the crops sector.
”Needless to say,” Hurt says, “pork producers are eager for the dawn to arrive.” That’s true wherever they raise pigs.