Risk management is a hot topic in the hog market. Scott Brown, University of Missouri economist, believes there are more reasons to be concerned about lower prices than optimism about higher prices as he looks ahead.
“Especially in those summer months, I always get concerned about the downside risk and some of the news out of China in terms of pork trade makes me more concerned. To me, the ability to lay off risk right now certainly is something that some folks need to be paying attention to,” Brown told AgriTalk’s host Chip Flory.
One of the factors helping the pork market now is a supply side that’s not expanding, Brown explained. From 2015 to 2020, the industry grew its sow inventory nearly every quarter. The latest Hogs and Pigs Report indicates no real expansion taking place.
“Less growth in hog supplies is key,” he said. “But we can’t forget that demand has been relatively strong for pork in this country and that’s been helpful as well. We need that to continue if we’re going to realize the kind of prices that we see out there as we get in the middle part of 2022.”
A Generational Shift
Flory asked Brown if he thinks there’s a major turnover happening now with one generation turning over the reins to the next generation of hog producers.
“That may be part of it,” Brown said. “I think there’s a lot of folks looking in front of them and saying, ‘Very high feed costs, very high building costs. Anything that I want to build right now is going to cost me a lot more.’ Not to mention what’s happening in the processing side of the sector. All three of these things make me worried about adding more sows right now. Until we get some of those three things off the plate, we’re likely in this sideways motion and I think that’s really what’s driving this.”
Is this a shift we’ll see in livestock production in general?
Brown said he’s afraid so. He believes we’ll continue to find economies of scale that exist in almost every aspect of agriculture. This will result in larger farms and fewer farms, whether anyone likes it or not.
Export Expectations Drop
USDA’s recent report suggests China’s overall imports of pork will be cut drastically. Because of this, USDA has reduced their expectations of U.S. pork exports by almost 500 million pounds, Brown explained.
“We need export markets to grow in the hog industry. I’m not certain we can continue to count on someone like Mexico making up for what could be another decline in U.S. pork exports to China. That has my attention in terms of some downside risk here this year,” he said.
With the U.S. pork industry exporting upwards of 20 to 25% of what it produces, if that number drops, that’s more pork that the U.S. will need to consume.
“Oftentimes, that comes with lower prices as well,” Brown said.
Pork Processing Pinch
Revisions for slaughter for the week ending Jan. 15 was 2.366 million head. Brown pointed out that’s nearly 8% below where the U.S. was a week prior.
“We’re certainly seeing some issues right now on the processing side. I’m sure the latest COVID-19 outbreak has created some issues in terms of worker availability. If we continue down this road, where we’re seeing downward revisions in slaughter relative to what was hoped for, I worry about hog weights in the short run and whether they start to go up as a result of that.”
Just how backed up will the country get if this starts to happen? That’s a big question now.
“It used to be the old story was how many shackles do we have to hang hogs on? That’s become a lot more complicated because not only do we need the shackle space, but we also need the labor to run those hogs,” Brown said.
More from Farm Journal’s PORK:
What Questions Do Pig Farmers Need to Ask Themselves Now?
U.S. Meat Trade Forecast Drops Due to Reduced Pork Exports
Animal Activists Are Targeting Iowa Right Now: 5 Things Pig Farmers Should Do
