Hog farmers will see “huge amounts of red ink” in the fourth quarter, said Jim Robb, the director of the Livestock Marketing Information Center, which is funded by the industry, universities and government. Fewer sows will be kept for breeding, cutting output and tightening pork supply, he said. That will raise both wholesale and retail prices to records by the second half of 2013, Robb said.
Prices for now are retreating, with wholesale pork costs tracked by the USDA tumbling as much as 25 percent since June 25 to the lowest in almost two years on Sept. 19. Hog slaughtering climbed 2.8 percent in first eight months of the year, the most since 2009, when farmers sought to shrink herds amid weaker demand following the global recession and the outbreak of the H1N1 virus, known as swine flu.
The 12 percent drop in corn prices from a record last month, and the prospect of bigger harvests next year, may encourage some hog farmers to slow their herd reduction. Slaughter rates in the five weeks through Sept. 1 rose less than 5 percent from a year earlier. That may leave enough sows to accelerate production once feed costs have come down enough, Rachel J. Johnson, a USDA economist, wrote in a Sept. 18 report.
Meatpackers processed an estimated 79.735 million hogs in this year through Sept. 22, 2 percent more than a year earlier, government data show. Animals sold at slaughterhouses fell to 63.58 cents a pound on Sept. 14, the lowest since Nov. 26, 2010. Prices retreated 8.5 percent this year.
Lean-hog futures for July delivery are trading at 97.225 cents a pound, compared with 75.075 cents for this December, a sign that traders are already anticipating fewer supplies next year. Per-capita pork supplies will shrink to 45.2 pounds next year, the lowest since 1975, the USDA estimates.
U.S. hog producers are retaining fewer gilts, or young females that haven’t had a litter yet, reducing the number available to replace older sows, said Rich Nelson, the chief strategist at Allendale Inc. in McHenry, Illinois, who has tracked the market for about 15 years.
Even with higher prices, pork will remain cheaper than beef, said John Nalivka, the president of Sterling Marketing Inc., an agricultural economic research and advisory company in Vale, Oregon. Wholesale pork fell 8 percent to 78.34 cents a pound this year, as beef declined 1 percent to $1.9269 a pound, USDA data show.
“If you got sticker shock on pork, you’ll have a heart attack when you look at beef,” C. Larry Pope, the chief executive officer of Smithfield Foods Inc., the world’s biggest pork processor, said on a conference call with analysts Sept. 4.
The price gap between hog and cattle futures was the widest in more than 26 years on Sept. 12, signaling consumers may switch to pork over beef. Rising U.S. pork exports may also spur a rebound in prices, according to Purdue’s Hurt.
U.S. exporters shipped 3.14 billion pounds (1.43 million metric tons) in the first seven months of this year, 11 percent more than a year earlier, USDA data show. Exports will expand to 5.35 billion pounds next year, from an estimated 5.346 billion in 2012, the government forecasts.