By Chris Hurt
In July and August, the pork outlook was bleak; it felt like fall prices and returns were going off a cliff. Even my outlook was suggesting that losses could be the largest since 1998.
But the outlook has brightened in recent months, and the reasons aren’t hard to find.
The first reason relates to tariffs imposed by Mexico and China on U.S. pork exports. In the summer, when these two foreign buyers were putting their tariffs in place, there were grave concerns that U.S. pork exports would tumble. However, in the first two months of those tariffs, export sales remained strong. In fact, exports are now running 9% above year-ago levels — this is stronger than USDA’s estimate of a 6% increase in exports for the year.
The second reason the outlook for pork prices has improved is African swine fever occurring in several countries around the world, but especially in China. The disease requires infected animals to be isolated and destroyed.
China, of course, is the largest hog producer in the world, and it produces 97% of its own consumption. This means China only imports 3% of its pork consumption. So if China begins to experience losses of its own hogs, this could mean the country will turn to imports to cover those losses. If China loses just 1% of its hogs to African swine fever, it would need to increase imports by 33% to cover the losses.
If Chinese tariffs on U.S. pork stay in place, the U.S. will get little of that new Chinese business, but Canada and Europe will get the business. That would mean Canada and Europe would export less to other countries, and the U.S. would get more of those exports.
The third reason the pork outlook has improved is lower feed prices, as the size of U.S. corn and soybean crops grow. In addition, the huge crops have weakened basis levels, providing even lower harvest prices and strong buying opportunities for corn and soybean meal.
Return to reality
I have given you a lot of positive talk so far, but prospects are still for losses this fall and winter — I’m estimating at about $20 per head. But back in the summer, the outlook was for $30- to $40-per-head losses. So, the outlook has improved, but it still isn’t positive.
The industry has been expanding since 2015 and needs to slow down. The breeding herd was up 3% in the most recent USDA survey of pork producers. Pork supplies this fall and winter will mushroom about 5%. The goal of the industry should be to stabilize the national breeding herd and allow demand to grow for a few years while keeping supply more stable. In this way, the industry will see recovery in hog prices and get back to profitability.
Hurt is a Purdue University Extension agricultural economist. He writes from West Lafayette, Ind.