Soaring feed costs may lead to hog herd culls
June 9, 2011
DES MOINES, Iowa – US hog producers may begin culling herds as the sputtering economic recovery stymies pork demand while tightening corn inventories increase livestock-feed prices — thus, curbing animal supplies and increasing costs for meatpackers, according to Bloomberg.
Wholesale pork has dropped 9.6 percent since May 16 from the highest price since at least October 1997. However, corn gained 9.5 percent. Hog producers are faced with record production costs, based on current futures prices, said Steve Meyer, president of Paragon Economics, at the Work Pork Expo in Des Moines, Iowa.
“I do not think there is any stomach in the industry for expansion, and there may be some contraction,” said Ron Prestage, whose Prestage Farms business has 170,000 sows in the Carolinas, Mississippi and Oklahoma. What’s more, hog futures may gain as much as 9.5 percent to $1 a lb. by the end of August or early September without disruption to export demand, he added.
Hog producers who don’t have risk-management plans could lose $8 a head in the fourth quarter and $10 a head in the first quarter of next year, predicted Ron Plain, a University of Missouri-Columbia livestock economist. If the breeding herd starts to shrink as soon as September, this will reduce slaughter rates in the third quarter of 2012, he added.
From October 2007 to February 2010, hog producers lost about $6.2 billion primarily due to high feed costs, Plain said.
“In the case of pork packers, they’re not exposed to the cost of corn, but clearly the producer is, and I think these high feed costs are going to force some potential contraction in the hog herd,” said Heather Jones, a BB&T Capital Markets analyst in Richmond, Va.
As a result, shoppers in the US could pay as much as 7.5 percent more for pork in 2011.