Pork Signals: Unexpected Challenges Flood In

Margy Eckelkamp ( Margy Eckelkamp )

By Dennis DiPietre and Lance Mulberry

It has been a favorable year for pork producers in general, but the coming fall and winter are setting up to be much more worrisome. Two things certain to occur are a substantial increase in total pork production (again) and a much higher-than-expected corn price. 

Certainties Not So Certain
Things that “seemed” certain to many, like massive increases in exports to China are being dramatically recalibrated. The discouraging pork export market performance so far this year is fueling a belief that what seemed to be an almost bullet-proof year with respect to profits, might end with a whimper rather than a bang.  

It is hard to imagine a spring when so much that affects the future profit outcome of U.S. pork producers has been so uncertain and “yet to be determined.” Just when everyone was watching China and expecting (many are still expecting) windfall export gains from ASF-related sales to China and a resolution to the current tariff barriers, another significant risk has been slowly emerging.  

Excess Water or Widespread Drought?
Let’s look on the bright side and say an unusual and persistent spring weather pattern has essentially eliminated drought from nearly the entire U.S. If you study the U.S. drought monitor online, you will see that the typical yellows and reds indicating emerging or persistent drought are all gone. 

One of the things that you learn early in a study of the U.S. crop situation (taken on a countrywide basis) is that “rain makes grain.” You learn to stay with that even when the flood water is topping your boots on the local level. Somehow, even when corn producers are practically baling out their tractor cabs and replanting for the second or third time, at the end of the season there it is on a national level in all its glory: a bin-busting crop. The resilience of the corn crop, especially, is far greater to excess water than to widespread drought. This year could be different.  

At the time of this writing, the latest USDA reports show crop emergence for both corn (79%) and soybeans (55%) are spectacularly behind previous years, breaking 20-year-old records handily. The eastern and southeast side of the Corn Belt are faring much worse than the upper Midwest. 

Wearing Weather
Storms originating in Kansas, Texas and Oklahoma continue to travel up the reliably well-worn path known as the “I-44” corridor crossing into central and southern Illinois and landing right in the middle of Indiana and Ohio. Waves of rainfall and “training” of storms (where storm cells line up and come over the same area again and again versus a frontal passage) have been the more typical and devastating characteristics of spring 2019’s rain pattern.

USDA typically waits until the crop is in and fully emerged before making any big judgments about deviation of the final harvest from expectation. This one could be a surprise. The market has added $1 per bushel to December corn prices in the last 30 days, up almost 30%. Meanwhile hog prices for December are off 10% over the same period. Calls on harvest month corn are beginning to look smarter than those calls on fall and winter pork prices.  

Ample ending stocks, stalled export growth and an excellent outcome for the corn crop in South America is making everyone take a “I’ll believe it when I see it,” approach to substantially higher corn prices for this coming season. We will see about that. 

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