Steve Meyer, president of Paragon Economics, expects hog farmers to receive record prices this year but they won't be celebrating because costs are also rising.
Farrow to finish producers on average are in for a break-even year, he said. Whether producers make money or not depends on their actions.
"You have the futures market offering you profits," said Meyer.
Meyer spoke recently at both the Iowa and Minnesota pork congresses.
A favorable factor for strong hog prices is that South Korea announced Jan. 25 that it would create a tariff rate quota for imported pork through the end of June, Meyer said. The tariff would go to zero, from a normal rate of 25 percent, on the first 60,000 metric tons of pork imported during that time. The South Korean government said it would review the issue as the target date grows near.
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South Korea is dealing with a serious outbreak of foot and mouth disease that has caused the government to kill more than 2.38 million pigs.
An early indication of whether any relief will come from high feed prices will be whether or not a good grain crop is expected from South America.
"It's kind of the first thing we'll look at, then all eyes will turn to the U.S. crop," Meyer said.
A good crop year is needed. USDA is forecasting the second-lowest corn stocks to use ratio ever and record high corn prices. Soybean stocks aren't quite as tight as corn stocks, but corn and soybean markets are inter-related since they battle each year for acreage.
Meyer is forecasting $100 per ton for corn and soybean meal to make a 16 percent crude protein diet through next year. Using ISU's estimated cost of returns for farrow to finish operations, that puts the break-even cost at $83 per 100 pounds of carcass weight compared with $69 last year.
Meyer recommends being ready to price hogs as spring approaches. At the first sign that the futures indicate the market has topped, start selling into the market.
The positive part of the story is strong demand both domestically and for exports.
"Exports in November were very strong relative to a year ago," he said.
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Meyer expects pork prices in grocery stores to set new records this year. He also forecasts record high beef prices and possibly record high chicken prices, due to higher production costs and reductions in livestock supplies.
Federal government's subsidies are supporting and insulating the biofuels industry from true market forces, Meyer said, and that's a major driver in the rising price of corn.
"We now use over a third of the corn crop to make ethanol," he said. "It was a fraction of that five years ago."
Because ethanol plants will continue to operate, Meyer said the market is in a "relatively permanent high price situation on grain."
Corn prices could come down once yield averages reach into the 200 bushels per acre range, and that's going to be awhile, he said.
Meyer is projecting 2011 average national net negotiated prices to be $73-76 per hundredweight for the first quarter, $85-89 for the second quarter, $84-88 for the third quarter and $76-80 for the final quarter. He predicts the average price for the year will be $79-83 per cwt.
