Will 2009 restore profitability to pork producers, or will their balance sheets continue to be printed with red ink? Not long ago, 2009 appeared to bring a better day. However, demand has softened and supplies remain strong. There are some mixed thoughts about the potential for pork profits and we’ll offer those and let you decide.

In his March newsletter, Iowa State University livestock economist John Lawrence says 2009 will not be much of a recovery from 2008, which was the worst year for hog returns since 1998. He says since USDA’s last quarterly report, feed prices have decreased, but so has demand, and he is forecasting a loss of $15 per head for 2009.

On the other hand, Purdue livestock economist Chris Hurt’s latest newsletter says producers may be on the verge of returning to profitability, and he believes that will come with a decrease in feed costs and rising market prices in coming months. His calculation is a modest profit of $2 per cwt.

Where do these two eminent researchers diverge? While both expect lower production costs, Hurt seems to anticipate a bit less supply of pork than Lawrence expects, who sees about the same demand as Hurt.

The Lawrence crystal ball. Based on the latest Hogs and Pigs Report, he says market hog slaughter rates declined in the past 10 weeks, but a portion of that is accounted for by a reduction in Canadian hogs slaughtered in US plants. However, Lawrence says US finished hogs being slaughtered continues at the same rate as last year. He believes’ “Canadian imports mask sow slaughter even more than barrow and gilt slaughter.” And Lawrence says US producers are building the breeding herd according to his estimates and those of Glenn Grimes at Missouri. Interestingly, Lawrence attributes the decline in southbound hogs from Canada to the Country of Origin Labeling requirement. He says unless the Canadian consumer increases pork consumption or the exchange rate turns around, there will be significant shipments of hogs and pork entering the US market.

Regarding demand, Lawrence says the recession has reduced global purchasing power; all the while per capita supplies of pork are building in the US as exports decline. And he says that will result in lower prices. Lawrence acknowledges that supplies of competing meats will be smaller and that will be supportive of pork prices. He says if Americans, who have begun saving, will get to the point of using some of their cash to buy pork, then demand will rise.

The Hurt crystal ball. Chris Hurt agrees with the increased per capita supply of pork in the US, particularly with the slowdown in Chinese purchases of US pork. He estimates that at a 6% increase over last year. But on the supply issue, Hurt says domestic production will drop 1%-2% this year and the market thinks the supply will result in a first quarter live weight price average of $42.50, rising from there, and reaching into the low $50’s by summer and gradually declining into the end of the year.

Chris Hurt’s analysis of the corn and soybean market may push down production costs further than Lawrence. Hurt is using a $3.36 average price of corn and $261 per ton of soybean meal. Based on those costs, he estimates farrow to finish operations would lose $11 per head in the first quarter of 2009, with profits of $12, $15, and $6 in the following quarters. Hurt says that depends on a continuation of the decline in the breeding herd, and he suggest pork producers focus their management on a survival strategy, rather than looking for big opportunities.

Summary:
Pork profitability may still be a challenge for many producers in 2009. Despite lower feed costs, and lower pork prices in the meat counter to attract demand, margins may be slim to none. While the herd has been shrinking, there are indications of expansion in the near future. Feed prices are lower, but production costs will nibble away at profitability.