Meyer sees opportunity on lean hog futures market
By Heather Thorstensen
hthorstensen@agrinews.com
Date Modified: 02/04/2010 8:39 AM
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MINNEAPOLIS – Livestock and agricultural economist Steve Meyer told pork producers Jan. 20 at Minnesota Pork Congress that 2010 will be a better year than 2009. He advised them to make the most of it by using the futures market.
Meyer, president of Paragon Economics, Inc. and a consultant to the National Pork Board and National Pork Producers Council, is predicting average national net negotiated prices on the spot market to be $58-62 per hundredweight for the first quarter, $68 to $72 for the second quarter, $66 to $70 for the third quarter and $60 to $64 for the fourth quarter.
The Chicago Mercantile Exchange Lean Hog Futures market on Jan. 4 showed some higher prospects, at $65. 86 for the first quarter, $74. 62 for the second quarter, $76.34 for the third quarter and $67.53 for the fourth quarter.
"There are wonderful pricing opportunities for summer," he said. "Take some of it."
Meyer said the futures market isn't always rational, but when you see one that looks irrational to your favor, you should take advantage of it.
He addressed Smithfield Food's recent announcement that it's closing its John Morrell plant in Sioux City, Iowa, in April. Smithfield leaders called the hog processing plant, built in 1959, old and inefficient. The company will honor contracts at Sioux City and move production to plants in South Dakota, Iowa and Nebraska.
Meyer said the closure was "completely foreseeable" due to mandatory country of origin labeling and finishing costs for producers. He also said it won't be too painful for producers, with negligible price impact. He doesn'tanticipate other processing plants will close, unless there are large changes in hog numbers.
Corn prices, driven by the ethanol industry, could drop three percent to five percent if two components of ethanol prices, a blender credit and a tariff, are allowed to expire at the end of 2010, he said.Corn near $3 a bushel will be considered cheap for the next three to five years. A good deal on meal will will be less than $280 or $290.
It's looking like 2010 hog supplies will be close if not as large as they were in 2009, so demand will be key.
America's domestic demand for meat increased in 2009, with pork seeing a 3.1 percent growth compared to a year ago. But, overall, trends don't look good.
"Meat demand in the United States is under some real pressure," he said.
He called the political climate "anti-meat" with some people wanting to give animals a godly status. He doesn't thinkU.S. animal protein sources will disappear, but he predicts there will be less producers in the future and they will have limited operational choices.
The country's demographics are changing, too, with increasingly older members of the Baby Boomer generation that should probably be eating less meat, he said.
Exports are doing well thanks to the low U.S. dollar, economic growth in other countries and a stronger Canadian dollar. November 2009 was the sixth largest export month on record, he said. Of course, 2009 exports can't compare with the record-breaking numbers of 2008. It's best to think of that year as a brother you'll never measure up to, he said. USDA is projecting a 10 percent growth in pork exports this year over 2009. Meyer thinks a safer guess would be a growth of six percent to eight percent.
There has been a large reduction of meat in cold storage.
"I feel good about where we are," he said.
Imports are also down, affected by a drop in live hogs from Canada.
Slaughter numbers are down. So far, 2010 has seen a drop of more than 10 percent output, which is helping prices. Breeding herds in the U.S. are also down. Sow slaughter is below 70,000 per week.
Since the vast majority of world's population lives outside the United States, the pork industry will become more dependent on international markets for growth. Meyer said the U.S. will remain a competitive supplier of fed beef, pork and chicken.
The economic downturn has changed American spending patterns. Meyer thinks the recession's lessons will stick, causing consumers to consume less.
He also thinks an increase in retail protein prices are coming that will last through 2011 and cause consumers to blame farmers for the price spike.