Wednesday, December 19, 2018
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pork rally fails to spur u.s. hog-farm expansion as feed costs curb profit

u.s. hog producers may be reducing breeding herds because of high feed costs, signaling a continuing rally in pork prices that are already forecast to climb more than any other food this year.

about 5.745 million sows were being held back for breeding as of march 1, down 0.3 percent from 5.76 million a year earlier, according to a bloomberg news survey of 10 analysts. that would be 0.6 percent less than three months earlier. the u.s. department of agriculture will release its quarterly estimate of hog inventories at 3 p.m. today in washington.

rising demand for u.s. pork helped propel wholesale prices to a six-month high this week. even with hog futures up 25 percent in the past year, producers are reluctant to expand because costs have almost doubled for corn, the main ingredient in livestock feed. the government forecasts that shoppers may pay as much as 6.5 percent more for pork this year at supermarkets and restaurants.

“the livestock industry is very nervous about feed costs, and until we get a feel for what kind of corn crop we’re going to produce, we’re not likely to see much change in the size of the sow herd,” said ron plain, a livestock economist at the university of missouri in columbia. “we’re going to have high meat prices because we’ve got a rather small herd out there today, so meat production is going to be down this year.”

tight supplies

producers without hedging strategies lost about $7.20 for each animal sold in the three months through february, said rich nelson, the director of research at allendale inc. in mchenry, illinois. that compares with losses of $6.42 in the year-earlier period and net profit of 83 cents a head in the three months through november, nelson said.

in february, producer profit was 90 cents per hog, as rising export demand encouraged slaughterhouses to pay more for animals, nelson said. spot-market prices rose to 81.51 cents a pound on march 24, up 22 percent from a year earlier. farmers normally need to see profits for about six months straight before starting expansion, he said.

before today, corn prices surged 92 percent from a year earlier and reached a 31-month high on feb. 22.

u.s. pork output may be up about half a percent because of heavier animals, plain said. the average hog carcass on march 23 weighed about 1.6 percent more than a year earlier, and reached 211.59 pounds (96 kilograms) on jan. 7, the heaviest since at least 2002, usda data show. a growing u.s. population and higher export demand will keep per-capita supplies of the meat tight, boosting pork prices, plain said.

higher retail prices

retail prices for pork chops averaged $3.48 a pound in of february, up 8.5 percent from a year earlier and the highest since at least april 2007, according to government data. boneless ham was 10 percent more expensive, and sliced bacon jumped 20 percent.

fast-food chain jack in the box inc. saw “significant increases” in pork costs in the first quarter, chief financial officer jerry rebel said last month. cracker barrel old country store inc. (cbrl), the operator of 599 restaurants in 42 states, expects “double-digit increases” this year, according to chief financial officer lawrence e. hyatt.

hog futures for june settlement rose 0.65 cent, or 0.6 percent, to settle at $1.01175 a pound yesterday on the chicago mercantile exchange. on march 9, the most-active contract reached $1.0235, the highest since at least april 1986.

strong overseas demand has driven the rally, analysts said. u.s. exporters shipped 368.9 million pounds of pork in january, up 17 percent from a year earlier, according to the most-recent usda data. japan, the biggest buyer of u.s. pork in 2010, will have to import more of the meat after a deadly earthquake and tsunami this month, according to the u.s. meat export federation.

‘robust’ exports

“i’m looking for export business to probably be rather robust over the next couple of months,” said lawrence kane, a market adviser at stewart-peterson group in yates city, illinois. “there is unfortunately some real potential there, due to the food-quality concerns that the japanese people are probably experiencing.”

higher prices, driven by exports, aren’t enough to persuade producers to expand because input costs are too high, said john nalivka, the president of livestock- and meat-industry consultant sterling marketing inc. in vale, oregon. hogs placed in feed pens now will consume about $165 of grain before they are slaughtered, up from about $123 a year ago, he said.

“that makes things kind of treacherous,” nalivka said. “it would take just a little bit longer before we start to encourage anything that kind of looks like expansion.”

‘supply problem’

if the breeding herd doesn’t expand, pork processors will be paying higher prices for fattened animals and the cost of the meat to consumers will climb faster than expected, according to allendale’s nelson.

“we almost need expansion to meet this supply problem,” nelson said. “we’re going to have a deficit in meat coming by the end of this year. that will be pushed into the wholesale and the retail end pretty quickly.”

the overall hog herd totaled 63.52 million head as of march 1, according to the bloomberg survey, little changed from a year earlier. the inventory of swine to be sold for slaughter, so- called market hogs, probably was little changed at 57.76 million, analysts said.

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