Summer is ending, and the tremendous productive capacity of the U.S. pork industry will kick into high gear as temperatures moderate and new-crop corn makes its way into feed. After a delayed but substantial decline in market weights, we can expect a rather sharp turnaround in the coming weeks. Even though everyone knows the fall growth spurt is on the horizon, the moment it strikes is rarely perfectly anticipated. The typical scene unfolds as the finisher door is opened to a shocking acceleration of growth and attained weights. Unless marketings are pushed forward beginning soon, the rapid growth will overtake the farm’s ability to transport and the packer’s capacity to harvest, leading to a period of backlogs and soaring weights with plummeting prices.
Increased marketing to China is inevitable, regardless of tariffs during the fall, as the seasonal demand for pork begins to edge up. Heavy split carcasses sent to import markets throughout Asia provide an efficient way to take the top off the December crunch time for U.S. producers. While Europe is currently leading the list of suppliers for the export business with China, they have structural permitting and capital availability issues which dampen expansion, regardless of how temporarily profitable the export market remains. Therefore, a constant shortage for China will exist until the U.S. can move more pork there or until time and massive production restructuring create a financial safety zone sufficient to reinvest there with any degree of hopefulness for the future.
Anyone who sees the world demand from China for pork to be its shortfall from the African swine fever (ASF) cull is going to be very disappointed. It is very clear that the Chinese people are facing pork prices which will ration available supplies, as it decreases quantities demanded as the mix of other protein demands, especially poultry, rise faster than the historical trend. Pork consumption in China has been on the decline anyway for a few years prior to ASF, especially among young consumers (up to age 30), as they move to a healthier diet lower in fat, along with an increase in quality and food safety attribute demand. The perception that ASF might contaminate carcasses and cause human disease, though not substantiated, dampens demand especially among the more careful consumer. Expect total per-capita consumption of all meat to decline in the next few years in China, as prices remain high and changing demographics shift demand patterns.
The fall celebration of National Day, along with one of the Golden Weeks, happens in the first week of October, officially encompasses two weekends and provides paid vacation. No need for the Chinese people to strategically mix a vacation day or two in to capture a little extra time. The New Year celebrations, which begin in late January and extend into the first 11 days of February, are peak demand periods associated with special countrywide celebrations, more paid vacation and more time off with massive travel demand, as people want to celebrate with family members. Pork is not necessarily the principal meat associated with these holidays, but historically it has been heavily consumed during the fall and winter.
Though the supply of U.S. pork seems like the only thing that is more-or-less predictable as we enter the fall, USDA has recently made significant pullbacks in the forecasts for corn and especially the U.S. soybean crop. Nothing will move the needle on prices though, due to a super-abundant supply on hand (carryover) and better-than-expected crops from Brazil and Argentina. Couple that with declining demand for feed in China and throughout Asia, where ASF has been marching through at a rapid pace. Still, we have lots of uncertainty lingering as the full impacts of the super-wet spring, late planting and replanting, the impact of gaming government programs and potential harvest problems loom on the horizon. Corn quality could be a big issue. But none of that is seemingly exciting anyone in the trading pits, as both primary feed ingredients are trapped in a horizontal trading pattern. That will make the fall much more bearable, given the crushing supplies and export lanes riddled with speed bumps of various origins.
Lastly, we highly recommend that you sample some of the plant-based meat substitutes that are entering the fast food and retail markets. In the past, these offerings were essentially inedible except for true believers, but that has changed. Next time we will explore this more successful effort by two competing companies to displace the perceived negatives of meat-animal production and consumption with plant-based alternatives. It will take less demand shifting than you probably think to create tremendous profitability problems for U.S. meat producers. Could be a flash in the pan, but it’s not looking that way so far.
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