Pork Producers Experiencing the Near-Perfect Storm

Pigs are seen at a Smithfield Foods, the world's largest pork producer, farm in the United States in this image released on April 11, 2017.

In January, it looked like 2018 could be a banner year for pig farmers. Exports were at an all-time high in 2017, even without the United States’ participation in the Trans Pacific Trade Partnership, from which it withdrew in January of 2017. Upwards of 27% of U.S. pork is exported, so one can’t underestimate the importance of global markets. U.S. trade representatives and other experts assured the ag industry that bilateral agreements would be forthcoming, and producers kept an optimistic attitude.

There were no indications – at that time – that anything would change. New plants were opening, too, which meant packers would be competing for pigs. Producers responded aggressively, with significant expansion across the Midwest. Why wouldn’t they? There was no reason to suspect the tide would turn.

And then it did.

Trouble started brewing in April, and since then, the tariff war has progressed from bad to worse. (Read this article for more details on the tariffs).

“Despite the strongest global economic growth since 2011, uncertainty around trade presents escalating concern to U.S. agriculture,” said CoBank in its recent Quarterly Economic Outlook.

“Seventy percent of U.S. agriculture exports are to destinations that are in current negotiation or trade disputes,” said CoBank’s Knowledge Exchange Division.

Pork and steel were the first to be impacted, with pork tariffs imposed by both China and Mexico, and then China again. These are two of the most important markets for U.S. pork, and the trade war shows no sign of a cease-fire.

Critical Situation
“Trade concerns pose the single greatest risk to the projected global economic growth of three to four percent,” said Tanner Ehmke, manager of CoBank’s Knowledge Exchange Division, in its news release. “The U.S. and China have been driving the growth, benefitting emerging markets around the globe. A trade war between the two is dangerous for economies around the world.”

“We now face large financial losses and contraction because of escalating trade disputes. That means less income for pork producers and, ultimately, some of them going out of business,” Jim Heimerl said in an article earlier this week. He is NPPC president and a hog farmer from Johnstown, Ohio.

Moving the Mountain of Pork
With more pigs going to market than ever before, everyone is wondering, who’s going to eat all that pork? Low retail prices will help. Full loins can be found for less than $2 per pound and retailers are providing consumers with ways they can cut the loins and use them in different ways.

Bacon love is helping, too, and continues to drive belly prices. The Omaha World Herald reported last week that “increasing appetites for bacon have drained supplies of frozen bellies by 65 percent over the last year, dropping them near record-low levels,” said authors Walt and Alex Breitlinger. “Meanwhile, pork belly prices have nearly doubled in the past two months, sizzling over $2.10 per pound and nearing the all-time high of $2.35 set during the hog shortage in 2014.”

The industry has developed creative trade partnerships with Argentina and Paraguay, and industry organizations are actively searching for new markets while expanding existing ones where they can. Closer ties with retailers and foodservice outlets also show potential for increased marketing of pork.

Pork producers are creative, critical thinkers. They are resilient and have come through difficult times before. Neil Dierks, CEO of the NPPC told Farm Journal’s PORK earlier this year: “Pork producers don’t give up; they just find another way.”  

Editor’s Note: The full quarterly U.S. rural economic review, “Trade War Rhetoric Shifts to Reality” is available at CoBank.com.