Keep Costs in Check: No Magic Solutions for Pork Producers

11:54AM Feb 14, 2019

( National Pork Board and the Pork Checkoff )

USDA revised its 2019 pork production downward as a result of the somewhat smaller market inventory and smaller farrowings this winter and spring as reported in the December Hogs and Pigs Report. However, Purdue University agricultural economist Chris Hurt says the general message remains the same: the U.S. will have record pork production in 2019.

USDA’s Office of the Chief Economist released its World Agricultural Supply and Demand Estimates (WASDE) report Friday, which provides the latest projections for production, prices, imports, exports, and per capita consumption for nearly all commodities, including pork.

Total red meat and poultry production for 2019 was lowered. The pork production forecast dropped for this year due to lower expected hog slaughter and slightly lighter carcass weights in the first half of the year. 

“Pork production is expected to rise about 4% for the year,” Hurt says. “In addition to 4% more pork, USDA’s estimates are for about 3% more beef and 1% more chicken. Total U.S. meat supplies will be at record highs.”

Beef prices are being supported by the strong U.S. economy, but pork is not feeling as much support from strong incomes, he adds. 

“Instead, pork prices are being weighed down by large supplies and trade uncertainty with Mexican and Chinese tariffs on U.S. pork still in place,” Hurt says.

At 27.6 billion pounds, the forecast for 2019 pork production is USDA’s lowest since the June 2018 WASDE. Pork export forecasts were also lowered due to slower expected pork shipments to key trading partners – but are expected to grow 6.1% YoY. 

Prices Off to a Bad Start
To date, hog prices are averaging about $41 per hundred pounds live weight. This compares with near $50 for the same period one year ago, Hurt says. 

On a liveweight basis, hogs averaged $45.93 in 2018. USDA (WASDE) has them averaging $41-$44 ($42.50) at the mid-point in 2019. Hurt says lean hog futures are more optimistic and have an estimated price of $47. 

“My cost of production is currently estimated to be near $51,” he says. “Large losses are expected in the first and fourth quarters and small profits are expected in the second and third quarters. It appears that the futures market is more optimistic for the last half of the year, probably because of an anticipation that China will import more pork due to reduced supplies from African swine fever.”

Slow Down Expansion
It’s more important than ever for producers to manage for tight financial times. 

“There’s no magic solution,” Hurt says. “Keep costs in check, watch for opportunities to forward contract or hedge at a profit, and do not expand when there is already too much pork. Be patient, as African swine fever could be a big factor and encourage the administration to settle trade disputes to keep efficiency high.”

More trade alone may not solve the financial problems, Hurt says.

“The industry has been in expansion mode since 2014. It is time to slow that expansion down,” he says.

Related Articles:

2019 Pork Outlook: Trade Optimism and Runaway Supply

Max Supply & Trade Turmoil Underlies December Hogs and Pigs Report