Better Profitability for U.S. Hog Producers, But Slow Global Recovery for Pork

October 22, 2015 12:00 PM
 
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How quickly things can change in a global world.  Earlier this year, U.S. producers were seeing pork prices—and their profitability--plunge as beef prices set new records at the grocery store.

Now, U.S. hog farmers are seeing an estimated profit of $14 per head, according to Rabobank’s newest quarterly report on the pork market, which is clearly an improvement over the “less-than-breakeven margins in the first half of the year,” the report said. “With the seasonal decline in hog prices this fall and winter, 2015 looks to be a breakeven year for producers on an unhedged basis, which is better than feared when the hog market was collapsing this spring,” the report says.

Will the upward trend continue for American hog producers? It’s hard to know, given the big unknowns affecting the market, including:

  1. PEDv. While USDA believes it’s determined how this deadly disease entered the U.S. and spread to so many hog operations, it still has not determined the exact point of entry. New outbreaks are continue to be a worry
  2. TPP. The massive trade deal known as the Trans-Pacific Partnership has tremendous potential to grow the market for U.S. pork. But the trade agreement still has to be approved by Congress, which is dealing with a contentious leadership transition in the U.S. House of Representatives.
  3. COOL. The World Trade Organization earlier this year said that “country of origin labeling” (also known as “COOL”) was illegal, but Congress still has not repealed the law requiring such labels in the U.S. This puts the U.S. meat industry at risk of seeing their products getting slapped with retaliatory tariffs in Mexico and Canada, which have argued that COOL was, to say the least, uncool and unfairly discriminated against their country’s meat products.

Here’s a quick snapshot of what is happening with hog farmers elsewhere in the world:

European Union: Stagnant consumer demand for pork is pressuring margins for E.U. producers, whose desperation became headline news this summer. The situation “erupted in strong farmer protests and the allocation of 300 million euros in aid by the E.U. Commission for both pig and dairy farmers,” according to the report.

China: Cheap feed is allowing Chinese hog producers to maintain their margins, but they may not be able to take much advantage of the opportunity. “Driven by the profits and the forecasted further market recovery in the coming months, herd replenishment has started” after significant culling, according to the Rabobank report. “However, the pace of replenishment is still slow, with high piglet prices pushing up production costs of new herds, making producers hesitate. Moreover, despite current profitability, many farmers have trained their financial strength in 2014 and early 2015, so they have limited capacity to expand herd size at present.”

Brazil: Their country’s economy and currency may be suffering, but Brazil’s pork industry is booming. Domestic pork prices are 25% higher than they were one year ago, and consumption remains strong. Russia, Brazil’s top customer, is growing exports by more than one-third this year.

Canada: Like the U.S., pork producer margins are rising. But the Canadian dollar is weaker than the U.S., “which has driven increased live hog exports to the U.S.”

Japan: Hog production is expected to finally recover in 2015 and 2016 after being hurt by PEDv and fatally hot weather in many areas. But Japanese producers may not have much opportunity to grow their industry. “The Japanese pork market is trapped by the depreciation of the Japanese yen,” the report said. “Japan is a net importer of both feed commodities and pork, which have both become more expensive. This has restricted expansion by Japanese pig farmers, due to high-priced feed, while, at the same time the processing industry cannot increase pork imports.”

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