Don’t Assume Anything in 2021, Economists Advise Pork Producers
Although no one holds a crystal ball to shed light on exactly what a new year will bring, Christine McCracken, Rabobank executive director – animal protein, says, “The disruption of the past year gave everyone a preview of just how bad things can get when plants are closed, customers are lost, labor is compromised, or export markets are lost. For the most part, the industry came through the experience with a few bruises and limited lasting damage.”
Five respected economists in the pork industry offer their advice as producers prepare for new opportunities and new challenges in 2021.
Dan Basse, president of AgResource Company
U.S. pork producers need to be thinking forward about margins amid the uncertainty of China import demand. Lock down profit margins when offered in coming years.
Scott Brown, economist at University of Missouri
Do not pass up opportunities to eliminate at least a portion of the price risk you face in both feed and hog prices. 2021 could be another year where feed costs stay low and hog prices remain profitable, but there remains risk in both sides that should be at least partially minimized. In addition, start thinking now about 2022 and beyond. How can your operation survive in a world without large increases in the demand for U.S. pork exports? The U.S. is likely to ship about 2 billion more pounds of pork in 2020 relative to the average levels of 2015-2017. This amounts to about 7% of total U.S. pork production. If full ASF recovery is achieved in the next 12 or 18 months in China and other markets, can the U.S. industry remain at its current size and still be profitable? What changes to your operation will allow for financial stability and not just survival if demand suffers a downturn in the next two years?
Dermot Hayes, economist at Iowa State University
Sell more hogs on the carcass price and fewer on the negotiated market. Use the futures or one of the subsidized insurance products to lock in or protect positive margins when possible.
Christine McCracken, executive director – animal protein at Rabobank
Make a plan. 2020 has been a very trying time for many – one that I hope we don’t have to repeat any time soon. But oftentimes when an industry is seriously challenged, it learns its vulnerabilities. I would proactively address those weaknesses whether that is by managing risk, strengthening your balance sheet or finding new markets for your pigs - you can limit the financial impact of another disruption. Having a plan before you need it and when you still have a choice, is a significantly better option than being forced to make tough decisions in the middle of a crisis.
John Nalivka, president of Sterling Marketing
Do not assume anything. We came into this year and who would have thought that by the latter part of April, things would turn into such a wreck? Be aware things can change rapidly and have your financial house in order. When these things happen, you have to manage risk. Managing risk includes the market, production risk and anticipated shortfalls. You have to ask yourself, “Am I prepared to work through that and manage the risk that I will face as a result of that?”
This is the second story in a three-part series. Read the full series.
More from Farm Journal's PORK:
2021 U.S. Pork Outlook: Volatility and A Little Optimism
Hard Questions the Pork Industry Needs to Tackle in 2021
