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Drought impact on pork industry is a tough call
Story Date: 8/1/2012
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Source: Rita Jane Gabbett, MEATINGPLACE, 8/1/12
Industry analysts agree at least some sow and hog herd liquidation is inevitable as corn and soybean meal prices soar in the wake of this year’s massive drought. What is less clear, however, is how much liquidation and when.
A new report by Rabobank predicts sow culling will increase pork supply and weight, pressuring prices downwards for the remainder of the year, weighing heavily on farmers' profitability. The bank further predicted declining pork production into 2013 will result in a rebound in prices, “but it remains to be seen if this will be sufficient to cover the booming feed costs.”
In the CME Group’s Daily Livestock Report, analysts point out that current corn, soybean meal and lean hogs futures on Monday indicated that farrow-to-finish hog operations were facing losses of $14.40 per head for the rest of this year and $11.12 per head for 2013.
The DLR analysts, however, report there isn’t much track record from which to predict the magnitude of potential herd declines, noting larger losses only drove 3 percent cutbacks in 2008 and 2009.
“Pork producers’ financial conditions are not nearly as good now as they were at the end of 2007, so we would expect a quicker response but smaller losses may leave the sow herd decline in the 2 percent range more akin to 1994 and 2002,” the analysts wrote.
“Whatever the potential magnitude, the data say it hasn’t gotten rolling yet,” according to the DLR, which noted sow prices have plunged the past three weeks, indicating ample offerings.
Globally speaking
Rabobank warns that while feed costs are projected to remain elevated until at least mid-2013, the primary risk to this view is the further worsening of the economic crisis, which is already pressuring global GDP growth.
A slowdown in high-growth Asian markets would limit pork import demand and price potential, the report concluded.
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