Anticipation of a return to normal is in the air, CoBank’s Knowledge Exchange said in its latest quarterly report. But for the economy and rural industries, there will be no going back to pre-COVID conditions.
“The combination of trillions of dollars in federal stimulus spending, warm weather, vaccinations and a persistently dovish Fed will soon generate a burst of economic activity unparalleled since 1984. But the impending release of cash-rich, inoculated consumers has spurred concern about a risk that’s also been dormant since the 1980s: inflation,” CoBank analysts said.
Sturdy Demand Overcomes Feed Cost Concerns
For the pork industry, strong first quarter demand, coupled with indications of limited supply growth, has lifted hog sector profitability to levels not seen in many years, the report said.
“Concerns over feed and other cost inflation has taken a back seat to optimism for another year of strong pork exports and robust domestic demand as U.S. consumer behavior slowly returns to normal,” said Will Sawyer, CoBank Knowledge Exchange Division lead economist, animal protein.
In addition, the rebuilding of China’s hog herd has slowed due to increased cases of African swine fever this winter, which has helped drive the positive outlook for the remainder of 2021.
“While solid information is difficult to come by, we expect this to be a brief setback to China’s directive to regain self-sufficiency for domestic pork demand. This is good news for this year’s U.S. pork shipments, as the decline from 2020’s record exports may be less than feared,” Sawyer said.
Year-over-year pork production was down slightly in the first quarter, but Sawyer noted that U.S. pork plants ran at full speed in March 2020 due to fears of COVID-19 driven plant shutdowns. As well, pork production suffered in February during the severe winter storm that affected plants and livestock shipments in the Southern Plains.
CoBank expects feed cost inflation in 2021 of nearly 30%, the highest increase since 2011. However, based on anticipated hog prices, producers could earn between $25 and $30 per head.
“The robust U.S. stimulus and significant progress in the vaccine rollout has lifted hopes for a meaningful return to eating out in the second half of 2021,” Sawyer said in the report.
Read The Quarterly here.
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