April 2, 1999
And the worst truly is over, according to Purdue University agricultural economist Chris Hurt, who said a recovery is now under way and gradually picking up steam.
"Hog prices will continue to recover from their Depression-era depths throughout 1999 and into 2000," he said. "Hog supplies will begin to drop below year-ago levels by June, with more dramatic drops in supply expected by the fall."
In terms of farmers' bottom lines, Hurt said producers finally will see break-even prices in May and a return to some profitability this summer and fall. The U.S. Department of Agriculture's March Hogs and Pigs report shows that the number of market animals will be about 2 percent below year-ago numbers from June through August.
"The anticipation of smaller pork supplies should help stimulate a strong spring price rally," Hurt said. "Hog prices should move from near $30 per hundredweight in early April to the higher $30s by early summer. With the cost of production expected to be in the $36 to $38 range, the industry will finally get back to break-even prices sometime during May. If producers have survived until May, they have likely made it through the price depression."
Those who didn't survive, Hurt said, succumbed to the ravages of the winter market. While the March USDA report does not provide the number of producers that dropped out, it does show a huge reduction in breeding herd numbers, because of liquidation and reduction.
"Perhaps most encouraging in the current report is the sign that hog producers are responding in a traditional manner to economic losses," Hurt said. "Many had felt that the industry is now dominated by larger producers who would hesitate to reduce production when times were difficult. If that were the case, downward adjustment in the size of the breeding herd would be slow, if it occurred at all.
"In essence, this line of reasoning suggested there is no longer a hog cycle, meaning the industry would have difficulty returning to profitability, and a long and pervasive period of losses would ensue. This report provides solid evidence that the hog production cycle is still alive."
The declining breeding herd means fewer farrowings this year. Producer intentions are to farrow 7 percent fewer sows this spring and summer than they did a year ago. "If this liquidation follows a traditional cycle, the breeding herd can be expected to continue to drop during the next year, reaching its lowest level in March 2000," Hurt said. "This would mean that hog prices would continue to improve throughout 1999 and reach their highest levels on this cycle in the summer or early fall of 2000. Hog prices should move from near $30 in early April to the mid $30s by the end of the month, and to the higher $30s by June 1. Summer prices are expected to be in the very high $30s, with some daily tops in the $40s per hundredweight."
Hurt said supplies will continue to drop sharply into the fourth quarter of 1999, when he expects prices to average in the low $40s: "Continuation of smaller supplies appears to be likely for the first quarter of 2000, when prices should be able to maintain the lower $40s. Summer 2000 prices could move sharply higher, at least into the higher $40s, with chances for hog prices to stretch above the $50s for the first time since August 1997."
By the end of April 1999, the pork expert said, the industry's losses will be up to about $400 per sow, or $40,000 for a 100-sow operation. Hurt advised producers to concentrate on stabilizing their finances, and he suggested that most should avoid major new investments until they know the full toll the price crisis has had on their operations.
Source: Chris Hurt, (765) 494-4273; hurt@agecon.purdue.edu
Writer: Amy H. Raley, (765) 494-6682; ahr@aes.purdue.edu