More than 20,000 people gathered last week at the Iowa State Fairgrounds in Des Moines for the 23rd annual World Pork Expo. Producers interviewed by Wallaces Farmer were nervous about high corn prices, and the possibility that the U.S. could run out of corn before the 2011 crop is harvested this fall.
While hog production costs remain high as corn supplies stay tight, hog prices have declined a bit from their highs of earlier this year. Profit prospects for pork producers remain positive, but not as much as earlier this year. Producers cite the flooding along the Missouri River in western Iowa which will reduce corn and soybean acreage this year, along with the acreage reductions caused by too much rain in the Dakotas, Ohio and other areas of the Corn Belt. All of those weather problems will reduce 2011 corn acreage, thus raising feed prices.
However, even with the early season weather problems this year's corn crop is experiencing and the resulting lower than expected 2011 corn acreage, hog producers were still in a better mood this year than they were the past two years at the World Pork Expo.
Availability of corn has become the new concern for pork producers
Two years ago this large trade show for the hog industry, which draws people from Iowa and 24 other states and several foreign countries, was a rather dreary affair. Pork producers were taking a bath in red ink as hog prices were low, having dipped below $40 per hundredweight on the cash markets.
The unprofitable pork production situation was caused by an oversupply of hogs, and sagging demand for pork. The sag in pork demand was due to a combination of the H1N1 flu virus scare (erroneously called the "swine flu" by many people, a number of whom who quit eating pork), and by the economic recession that hurt consumer buying power. A slowdown in exports of U.S. pork to markets beyond American borders was also hurting demand.
Today, those issues are history. Hog prices are about 50% higher than they were two years ago, the pork export market is strong and hog inventories are more in line with demand. And more than $1 billion worth of pork is being exported from Iowa alone this year. The big worry now is corn for livestock feed, and whether there will be enough corn to meet demand before this year's harvest begins.
Corn is still the biggest single cost when it comes to raising a hog
Corn is the biggest single cost for raising hogs and right now the price and availability of corn is uncertain. A year ago corn was selling for about $3.50 a bushel. Last Wednesday's price was $7.60 per bushel for the July contract on the Chicago Board of Trade. "Those prices for feed make it tough to make a profit and I don't like this situation," says Iowa hog producer Dean Frazer of Conrad.
Hopefully, hog producers will be able to ride out the high price of corn as long as hog prices stay high. Hogs closed higher last Wednesday on the Chicago Board of Trade stopping a market slide that had sliced 15% off of hog prices since April.
Now the problem goes beyond corn prices, to the simple availability of corn for feed. U.S. grain stocks are currently at a 15-year low, according to the most recent USDA stocks report. This spring's planting season was dogged by bad weather and flooding, making pork producers nervous as they see supplies of corn dwindle through the summer while they still have animals to feed.
Believe USDA's 92 million acre estimate for corn is optimistic
Pork producers believe USDA's 2011 national planting intentions survey released in March, which projected 92 million acres of corn this year (up from 88 million planted in the U.S. last year) will prove to be too optimistic. Providing an update, USDA will release its annual Planted Acreage Report on June 30.
Dennis Smith of Archer Financial Services in Chicago, who attended the Pork Expo, says "I figure corn acres at no more than 90 million acres this year. And I sympathize with pork producers who worry there might not be enough corn for both feed and ethanol during late summer this year before the fall harvest."
The hog business isn't like operating an ethanol plant, where you can flip off a switch, shut down for awhile and take some time off, says Minnesota pork producer Randy Spronk. The hogs need to be fed. He remembers the last time U.S. corn supplies were at the two-week supply level, which is where they are now. That happened in 1995. He had to hire a trucker to go to South Dakota to buy corn and haul it back to his farm in Minnesota, a costly 400-mile round-trip. "I was glad to find some corn but I hope I don't have to do that again," says Spronk.
Those are quite productive crop acres along the Missouri River
Michael Formica of the National Pork Producers Council told a media briefing last week at the World Pork Expo that about 2 million acres of potential corn land wasn't planted in North Dakota this year because of cold, wet weather. As many as 4 million acres may have been lost in the Mississippi and Louisiana area when the Mississippi River flooded last month. Now end-users of corn are sweating out the expected flooding that is projected to occur along the Missouri River basin.
Iowa-based economist Steve Meyer, a consultant for the National Pork Producers Council, says the flooding along the Missouri River in mid-to-late June could take out 450,000 acres of corn and 350,000 acres of soybeans in South Dakota, Iowa, Nebraska and Missouri. That flooding is expected to reach high levels during the week of June 13 to 19 as the U.S. Army Corps of engineers releases more water from dams and reservoirs in the Dakotas which are overflowing because of above normal rains and snow melt this spring.
Farmers and others speculate that some ethanol plants may shut down in August for maintenance when corn supplies might run short and prices will certainly be high. That creates another issue because livestock feeders are feeding distillers grains, which is a byproduct of ethanol production. When there is no ethanol production, there are no DDGs produced either.