June 9 (Bloomberg) -- U.S. pork prices that already are the highest ever may rise further as hog producers pass along the increased costs of animal feed, said Steve Meyer, the president of Paragon Economics.
“There’s still a significant amount of upside risk on feed costs as we go into 2012,” Meyer said today in a speech at the World Pork Expo in Des Moines, Iowa. “The industry is going to have to get those costs passed along at the wholesale level and the retail level. We are at record prices for pork, and we’re going to go up as we go through the year and into 2012.”
Retail pork reached $3.377 a pound in April, the highest ever, according to government data. On May 16, wholesale pork climbed to 98.31 cents a pound, the highest since at least October 1997, U.S. Department of Agriculture data show.
U.S. producers were posting profits from about February 2010 through April of this year, Meyer said. As of May, producers who are buying grain and selling hogs on the cash market are losing money because of the drop in hog prices and increase in corn costs, he said. Spot-market hog prices dropped 3.7 percent in May, the first decline since October. Corn futures have more than doubled in the past year.
Projected margins, based on current futures, are “not good,” Meyer said. Producers may lose about $5 a head on average this year, and more than $11 a head over the next 12 months, he said.
“The issue is not the price of pigs,” Meyer said. “The issue is cost of production, and the uncertainty we’ve had about this corn crop remains.”
U.S. corn stockpiles before the start of the 2012 harvest may fall to 695 million bushels, the lowest since 1996, even as farmers harvest a record crop, the Department of Agriculture said in a report today. World inventories are projected to drop to the lowest since 2004 next year.
The availability of low-priced chicken relative to other meats, and the impact of higher gasoline prices on consumers’ disposable income has put “a drag on demand” for pork, Meyer said.
U.S. retail prices for bone-in chicken breast are up 4.9 percent from a year earlier as of April, compared with a 10 percent jump in the price of bone-in pork chops, government data show. On May 4, the national average of regular gasoline at the pump reached $3.985 a gallon, the highest since July 2008, according to AAA, a U.S. motoring organization.
Export demand for U.S. pork, driven mainly by South Korea, is a “big positive” for prices, Meyer said. U.S. shippers almost tripled pork exports to South Korea in the first quarter of this year after the Asian nation’s worst outbreak of foot-and-mouth disease curbed meat supplies.
A government report on U.S. hog inventories, scheduled for June 24, may show a slight increase in the breeding herd from a year ago, Meyer said. If producers continue to make losses through November, some operations may liquidate, while others may consolidate in the next three years, he said.
“That producer that’s done a good job managing risk is probably poised to grow when the opportunity comes,” Meyer said. “The producer that did not is probably sitting on the precipice as we go into losses this year whether they’re going to survive in the business.”
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