Pork Markets Bullish? We Remain Cautiously Optimistic on Profits

It’s fair to say most producers are dealing with a combination of shock, delight and apprehension for the future. The fact hog prices have returned to the January expectation and $40 per head profit is going into the bank has surprised many producers who believed the deep price dip in late spring was the harbinger of a muted summer seasonal peak. Slaughter weights have dropped substantially, which also helps.

The weekly export numbers for pork primals reported by USDA suggest that while export trends are up a bit from last year, especially with volume, they have probably been helped in part by a little stockpiling ahead of tariff implementation. The normal seasonal decline in purchasing by importing countries due to escalating prices going into summer now seems to be in full swing. 

Capacity Gearing Up

Federal hog slaughter under USDA inspection is running about 2.7% above last year.  While it might be early next year before the third major packing plant comes online, Seaboard Triumph Foods (STF) announced it has completed plans to fully operationalize its second shift in October of this year. That should bring its total kill up to approximately 21,000 hogs per day and will provide some relief just when it is needed during a time when hogs undergo rapidly accelerating growth brought on by cooler weather and new-crop corn. 

Tariffs and Trade

By that time, the full effect of tariffs and trade issues should be pretty much known if not resolved, but we still cannot get too worried about a big negative impact developing from that situation. Don’t panic when you hear about some pork from the EU moving to Mexico, etc. All of this is gamesmanship now. The one thing political folks still do not understand about the current president is he does not issue forth with policy statements. Every utterance is the latest negotiation offer or counter offer placed on the table. So, any ideas that he “believes” in tariffs like some theory of trade is just silliness. He will selectively use them as tools, and yes, possibly for an extended time, to accomplish a goal, and then they will fall away. 

Pork Supply High, Inputs Low

The December lean hog futures is not looking very encouraging for year-end, and there is still a lot of pessimism in the market, which is largely borne of uncertainty. No doubt there is little uncertainty about the fact that a lot of hogs will come to market this fall and you should certainly consider risk management and some price protection as you see fit and as opportunities appear. Keep in mind though, lower hog prices make export sales grow stronger and that, of course, helps cushion the valley. So far, the U.S. corn crop is in the best condition since 2014 (at least) and soybeans are essentially at the same place. Hot and wet weather is making for a great crop. A lot can happen between now and harvest, but low feed costs will go a long way to help further cushion any deeper-than-expected fourth-quarter hog price slides.

Strong Economy Helps

The domestic economy could not be stronger without igniting more inflation and a much more determined activist policy by the FED in the form of escalating interest rates. Keep in mind, one of the benefits of a full-employment economy is increased eating out and purchases of meat. On a side note but very important, the New York Times reported last month that the number of Americans seeking social security disability is “plunging” because of the dramatic increase in economic activity in the U.S. (read the article here: https://nyti.ms/2tb0WqR). The author reported the drop was so significant that the government extended the time frame in which the program could be expected to remain solvent by nine years, compared to an estimate made just two years ago. A paycheck from a full-time job buys more pork than a disability check, so look for domestic demand to provide some (currently) unexpected support to the meat complex in general and to pork specifically. 

We hate to jinx it, but we remain more bullish than most right now, as we look out into the late fall.