Pork Signals: 4 Indicators Profitability May Be Coming

Start planning for a profitable 2019. ( iStock.com )

Let’s start with an old familiar caveat, “Don’t count your chickens before they hatch.” However, there is a decent chance that profitability will return to the pork industry this fall, well ahead of forecasts that don’t see much black ink until summer 2021. 

Here are four indicators that we may see profitability return sooner than expected: 

1.    Costs remain very low.  
Interior Iowa corn prices per bushel are currently around $2.80 a bushel and soybeans are in the upper $8 range. Huge supplies and production, even though damaged by the derecho, have not substantially lifted prices. There seems to be a lot of uncertainty about the harvestability of some of the wind damaged crop, but exports of corn have been sluggish and, in many cases,, places to store the crop in Iowa are laying on the ground.

2.    Beef retail prices are high. 
High beef retail prices have substantially helped pork in the domestic retail market. Ground beef is about the only thing that has been competitively priced with many different pork cuts. Lots of pork specials rotating through the major cuts plus a substantial supply of frozen spareribs earlier in the summer kept the pork case supplied and the product moving even when COVID-19 outbreaks at the plants cut harvest and processing essentially in half for a short period. Exports, except for China, have been a cause for concern this year. While exports are up substantially in both quantity and value, it is all coming from one country – not a good sign.

3.    Harvest plants are running at near capacity.
Pork plants have been harvesting at near capacity, well above year-ago levels, for a few weeks now and market weights have dropped substantially indicating that the backlog is probably nearing an end. No one knows for sure what the inventory is out there and trying to estimate it with slaughter and a few other metrics like weights is tricky at best, but the signs are aligning. I am skeptical the next USDA Hogs and Pigs Report will be the most accurate one in history, so we will all live with lots of uncertainty for many more months. 

4.   Producers try to counter a counter-seasonal summer.
Although we do not know the extent and timing with any accuracy, a very large number of animals were euthanized, including market-ready, near market-ready and weaned pigs. Euthanizing of weaned pigs had been going on for some time when weaned pig prices were in a sheer collapse much earlier this year. Taking these small animals out of the inventory will show up soon as a pressure relief valve as the return of cooler temperatures and the impact of new crop corn will result in surging growth rates. Managing growth through dietary changes is now a well-established tool in the tool bag of most producers and can be brought out to limit surging weights when needed. This will need to be watched carefully as the upturn in seasonal performance of finishing animals has already begun. The question remains: How many animals are waiting in finishing barns and how much of that fall growth will be encouraged or restrained through dietary changes?

Yes, the unknowns are everywhere. But, indicators are beginning to point to a counter-seasonal fall to offset the counter-seasonal summer price movements. This is a very long shot since the factors that cause counter-seasonal price movements must be very strong to reverse a seasonal price pattern. While they often cannot be altered as they are unfolding, the steps taken within the period of profit stress can cause a bounce back that alters the next seasonal move (which in this case, would normally anticipate falling prices into the end of the year). The extent of profitability and how it will play out against the forces pulling prices down into the fall will soon be known, but I am a price optimist for the first time in many months.    

Dennis DiPietre and Lance Mulberry are economists with Knowledge Ventures LLC.

More from Farm Journal's PORK:

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Pork and Beef Exports Rebound in July

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