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Steve Meyer details price outlook at Pork Congress

By Janet Kubat Willette

Date Modified: 02/19/2013 6:54 PM

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MINNEAPOLIS — The biggest factor influencing United States hog producers in 2013 is a four-letter word.


Will it rain? Where will it rain? When will it rain?

Steve Meyer, president of Paragon Economics of Adel, Iowa, ran through his market outlook during an hourlong presentation Jan. 16 at Minnesota Pork Congress.

Everyone's betting on rain, Meyer said, adding he doesn't see how many can survive back-to-back droughts.

"It's going to need to rain at the right time as we get into spring," Meyer said.

Last April, southern Minnesota was dry, but May brought moisture. Minnesota produced a record corn crop last year while other states in the Corn Belt suffered through what some say was the worst drought since 1988. Today, the eastern Corn Belt is in better shape moisture-wise, while the Great Plains are dry, with much of the western Corn Belt needing three to six inches of moisture to get back to normal.

That Great Plains drought will have implications for beef producers, but also pork producers because of the amount of corn grown there, Meyer said.

Droughts have a way of hitting pork producers in the pocketbook, driving up input and production costs.

Pork producers are in a precarious place, he said, but the futures market offers a glimmer of hope. Futures for summer 2013 have offered near break-even prices for hogs.

His price forecast calls for prices to average $87 to $90 per hundredweight for 2013. Prices broken down quarter-by-quarter are as follows: Quarter 1: $84 to $88; Quarter 2: $88 to $92; Quarter 3: $90 to $94, and Quarter 4, $83 to $87.

As of Jan. 16, he calculated the break-even price for pork producers at $93.86. His profit outlook for 2013 is for producers to lose $7.22 a head.

His advice to producers is to get their June through August corn in a bin someplace by March. The latest USDA report showed there are tight feed stocks going into this year.

In 2012, the United States reported its lowest corn yield since 1991 and soybeans had their largest deviation from trendline yields since 2003.

December hog inventories suggest no reduction in herd size, Meyer said, but weights were two pounds lower.

Exports and demand remain strong. Exchange rates are key to exports, he said.

The world economy, except for Europe, appears to be doing better, Meyer said. The United States economy continues to muddle along.

He sees trouble for beef producers as 54 percent of the nation's pastures are rated poor or very poor. The July 1 cow inventory was the smallest since 1946. The calf crop was the smallest since 1949. Feedlot inventories were down 6 percent. Cattle producers are caught between poor pasture conditions, low hay supplies and high grain prices, he said.

Meyer predicted weights would remain higher for 2013 with continued lower beef supplies and high cow slaughter. Long-term, he sees tighter and tighter per capita beef supplies. He wonders if beef will cease to be a habit for consumers below the middle class because of its increased cost.

Waiving the Renewable Fuels Standard would have provided little relief for livestock producers, Meyer said, but Congress may have to rework it because gasoline consumption is dropping at the same time the amount of ethanol required to be blended with gasoline is increasing. The RFS rises to 13.8 billion gallons for 2013.

Ethanol plants have also been feeling the squeeze of high corn prices, with several plant cutbacks since July.