The USDA’s June Hogs and Pigs Report is typically not one that analysts anxiously await. But this year proved different.
“There’s so much uncertainty right now,” says John Nalivka, president of Sterling Marketing in Vale, Ore. “With all the talk of sows and pigs being euthanized, it left us wondering what that number of hogs really is right now. Back in the day, when the report didn’t come out the way we thought it would, we’d say the USDA was wrong.”
The total inventory for all hogs and pigs on June 1 was a record-large 79.6 million head, up 5% from a year ago and up 3% from March 1. The market hog inventory on June 1 was 73.3 million, up 6% from 2019 and up 3% from the previous quarter.
Nalivka was surprised by the numbers and admits he thought the industry had worked through more of the backlog than the report indicated. However, he notes the survey was taken weeks ago, and many things continue to change.
“At the end of the day, we've built a pretty efficient, well-oiled machine that got out of whack,” Nalivka says.
Expansion and Exports
With the U.S. herd expanding at a pretty rapid pace, the big question on everyone’s mind before this report: Were we able to slow expansion enough after the COVID-19 disruptions?
“Over the last two years, the industry has expanded to rapidly fill the gap created with new capacity,” he says.
Nalivka tracks capacity and estimates current pork processing capacity at 2.736 million market hogs weekly with current utilization now back to 93% from a low of 54% in late April.
“To expand to where we are at today, we're simply not going to consume that quantity of pork in the U.S. at prices that will be attractive to anybody in production,” Nalivka says. “We need the export market and certainly ASF in China has bolstered a growing market for U.S. pork.”
Uncertainty about a trade war with China looms, but with the African swine fever situation still raging, he feels confident that China will keep buying pork from the U.S.
“Otherwise, we have built the herd to this level with the processing capacity for a significantly lower level – that simply does not work,” he says.
Farrowing intentions for June-August and September-November are both down 5% from a year ago. But what people say and what they do are not always the same thing, Nalivka adds.
“The farrow-to-finish producer margins have been negative enough for a long enough period that it’s negative to the producer to continue to expand production,” he says.
This is the end result of reduced hog supplies during the first half of 2021, he notes.
“We’ll back this production enough to put some legs under this market and improve the margins at the producer level and get things back on track,” Nalivka says. “But the issue of packing plants and COVID remains. The bottom line is that the unions will continue to play that up in this labor situation to the extent they can.”
Although exports have been a bright spot in the pork industry, Nalivka says the market is still largely made up of U.S. consumers buying and consuming pork. There’s no question that consumer buying patterns have changed since COVID-19 struck. People are eating at home more, and with restaurants, food service and schools experiencing closures or major disruption, it’s hard to know when or if that market will completely return.
“I’m cautiously optimistic about how much support we could put back into prices when we’ve got this much production still left in front us to work our way through,” Nalivka says. “It’s a tough go. We’ve got to get beyond all of this COVID situation and get things back on track again, and we’re not there yet.”
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