By Chris Hurt
Pork producers have a special connection to Christmas. They provide the Christmas ham that sits in the center of the holiday table. The tradition of a Christmas ham is believed to date to medieval times, with probable origins in Germany. From there, the tradition spread throughout Europe and eventually to the New World — and our very own Christmas celebrations.
Christmas hams are important to hog market prices, as well. Grocers are aware of this tradition and build their ham inventories in late November and early December to be ready for the surge in demand. This also means pork processors must build their inventories a few weeks earlier, and that can help strengthen hog prices.
Grinch steals ham profits?
Christmas hams can help support hog prices. But will prices be high enough to provide profits for producers? Unfortunately, it looks like Santa will not be able to bring that kind of joy to the pork industry this year.
Pork supplies will continue to be higher by about 4% this winter. These record-large supplies will be a constraint on higher prices. Meanwhile, pork demand could be strong if we continue to make progress on trade disputes, and if there remains some panic buying due to concerns about African swine fever in China.
Prices for 51% to 52% lean carcasses are expected to be in the mid-$50s in the final quarter of 2018, and then in the higher $50s in the first quarter of 2019. Estimated cost of production is around $67, so losses are likely.
Tell elves: Sell pork!
Based on these numbers, estimated losses for the last quarter of 2018 could be about $23 per head and about $17 per head in the first quarter of 2019.
Lean prices are expected to be around $70 for quarterly averages in the second and third quarters of 2019. That means producers could see a little bit of profit, most likely from $2 to $6 per head.
However, lean prices are expected to drop back down into the low $40s in the last quarter of 2019, with losses growing to around $20 per head.
By my estimates, hog production has been unprofitable since late 2017. This means a lot of red ink has been spilled and some erosion of producer equity has occurred. There has been a constant expansion of the industry since 2014.
The industry hopes to see settlements of trade disputes as quickly as possible and to begin working to regain export market share. We have a lot of pork to sell, and we need access to all buyers possible.
Hurt is a Purdue University Extension agricultural economist. He writes from West Lafayette, Ind.