“It’s like the black swans never quit coming at us, in terms of things that affect the industry,” says Dr. Scott Brown, director of strategic partnerships for the University of Missouri’s College of Agriculture, Food and Natural Resources.
Pork producers have experienced several challenges in recent months with feed costs increasing and transportation and diesel shortages, while parts of the world continue to experience war and the uncertainty is widespread. On “AgriTalk,” Dr. Brown shared his economic insight of the pork industry, both abroad and domestic, as well as consumer spending.
For the pork industry, Dr. Brown explains that these ‘black swans’ have created a great deal of volatility.
“If you listen to any of us, you know the concern about the risks,” says Brown. “It’s in the marketplace and has everyone’s attention. I sometimes will say, ‘volatility provides opportunity for both upside and downside.’ While all this volatility and making the right decisions can be profitable, making the wrong decisions can be very unprofitable. Give yourself the opportunity to take advantage of markets where we can.”
Challenges Abroad
China has been a part of this volatility abroad, as the country rebuilds its herd from an African swine fever (ASF) outbreak and recovers from its ‘zero-Covid’ policies that locked down major cities for several weeks.
“We’re talking about hog prices that are lower and tighter than they’ve been for a while,” Brown says when referring to China’s affects on U.S. pork producers. “But can we turn up from the very low levels of the past several weeks here? My answer is yes. I think the Chinese will come back and maybe we’re not going to come back to the peak levels of trading deals in back in 2020 under the worst of ASF.”
Brown believes China has recovered its hog herd quickly, incentivized by the high prices the country was paying for pork. Brown also notes that during this time of high pork prices, consumers in China had the opportunity to turn to other protein sources, which may be a challenge for the industry going forward in reaching record levels once set.
Domestic Uncertainty
For hog producers, the start of the year looked like it had a chance to be ‘okay’ from a profitability standpoint, but these ‘black swan’ events have taken a lot of the profitability optimism out, Brown explains.
Looking at the U.S. hog herd numbers, “We’ll see what we get out of the report here when we get the June report for hogs and pigs. I’m not going to be surprised for us to be down again, relative to year over year levels, maybe similar to the 10% in the March report,” Brown says.
Brown believes, “the incentive to expand, I think right now, is certainly sitting on the side of the road for most of these folks,” when considering the threats of disease, cost to build, labor issues and available shackle space.
Regardless of what happens in the next several months, Brown encourages producers to manage risk. “Don’t think about just locking in the revenue side without thinking about locking in the cost side. That’s a sure way to get yourself in trouble quickly.”
Solving the issue of labor shortages is top of mind for many employers, with meat processing being no exception. The industry needs to continue working on ways to replace the labor-intensive parts of pork processing with more automation, says Brown. However, this technology will take time and the cost of this technology may be seen at the consumer level and decrease hog prices for the producer.
Additionally, consumers face uncertainty at the store, where bottlenecks from production to consumption have made supply and availability of goods erratic, Brown explains.
The high costs of fuel have also been challenging for consumers, as averages reach record levels, yet consumers haven’t seemed to change habits, yet.
“I don’t really see many folks yet making changes. I kind of wonder if we will find ourselves in a situation where it’s almost like a light switch. We’re going to spend money as the average consumer until we no longer can do it anymore. If it turns off like a light switch, I think that happens. It becomes very difficult very quickly,” Brown says.
Brown notes that the continual downgrades of economic growth in the U.S. and around the world, as well as the increase in credit card debit, points to tougher times ahead.
Listen to the full interview here:
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