Source:  Rita Jane Gabbett, MEATINGPLACE.COM, 9/29/10

The recent climb in corn prices to nearly $5.00 per bushel from about $3.50 in July has dampened hog producer thoughts of expanding herds, which might just keep them making money through 2011, according to Purdue University Extension Economist Chris Hurt.

Hog prices are expected to average about $55 per hundredweight on a live weight basis for the final quarter of 2010 with a breakeven corn price of $5.15 per bushel, Hurt wrote in an outlook report.

A $56 average hog price is expected for the first quarter of 2011 with a breakeven corn price of $5.30. Hog prices should rebound in the second and third quarter, averaging $60 and $57, with corn breakeven prices of $6.10 and $5.50 per bushel.  If production is up as much as four percent in the final quarter of 2011, hog prices will drop back near $50 and corn breakeven prices drop to $4.10.

“This demonstrates how even a modest expansion can put margins at risk,” he warned. “The clear message for the industry is 'Don’t expand and margins will be OK.’”

The state to watch is North Carolina, Hurt noted, where breeding herd numbers are down 110,000 head from last year. “One key to watch is large corporate producers with production in North Carolina. There is likely little appetite for expansion over the next 12 months that would throw the industry back into losses.”

The next two years will not be a repeat of the large losses of 2008 and 2009, said Hurt, citing three reasons: 1) pork producers have adjusted their herds lower such that they can pay $5.00 per bushel for corn and still maintain positive margins, 2) the U.S. and world economy will continue to recover, and 3) H1N1 will not deflate hog prices.

“Pork producers should not panic…They should avoid expansion, increase feed efficiency, and reduce marketing weights and margins should remain positive,” Hurt concluded

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