Hog producers looking to squeak out a profit after turbulent year
10/18/2018
Group of hogs in a pen

In January of this year, the hog market was anticipating a good to stellar year. Then April came, tariffs were enacted, and prices plummeted. 

The outlook, as recent as a couple months ago, looked grim – non-profitable. At that time, Chris Hurt, Department of Agricultural Economics, Purdue University, was forecasting losses of $40 or more per head in the fall and winter, the worst since 1998. However, since that time, markets have notched up some and Hurt is now predicting losses of $10 to $20 per head this fall and winter and then for profits of $5 to $10 a head next spring and summer, before returning to losses late in 2019.

“It’s looking like a profitable year – not as rosy as in January, but better than in April,” adds Mary Kelpinski, chief executive officer at Michigan Pork Producers Association.

 

Trade and tariffs

Tariffs on China and Mexico are having the most dramatic effect on U.S. pork markets. Exports continue to be a high priority as they represent 22% of U.S. production.

China’s duty rate on pork muscle cuts and variety meats went from 12% at the first of the year to 37% in April and now, after another 25% was added in July, they are at 62%. 
The Chinese had been buying more than 91% of U.S.-produced pig feet and 96% of pig heads, two of the largest categories for pork by-products or variety meats.

Chinese people love pork. China, historically a large importer of pork, has been ramping up production to be more self-reliant and now consumes just about everything it produces, according to Kelpinski. “China had been cutting back its imports from the U.S. prior to the tariffs being put into place,” she says. “But with the announcement in April, that really hurt the market.”

China produces 50% of the pork produced worldwide, so when the deadly African Flu Virus was reported in that country, it again changed the dynamics of the market. “They will have to import product, and even if it’s from other markets and not from the U.S., there will be an opportunity to backfill those markets with U.S. pork,” Kelpinski explains.
“We’ve also had other trade opportunities, where barriers have opened – South Korea is huge.”

Total U.S. pork exports were up nearly 9% in July, thanks largely to increases to Japan and South Korea, which are the second and fourth largest export buyers. “We have been working with smaller countries too,” says Kelpinski. “It’s not China or Japan, but it’s still significant. We should have close to a record year in exports.”

Third-quarter pork exports are expected to be 1.3 billion pounds, almost 6% higher than in the same period a year ago.

Mexico, the largest market for U.S. pork, continues to allow pork variety meats to enter Mexico duty-free. However, its duty rate on pork muscle cuts increased from zero to 10% in June and jumped to 20% in July. Beginning in June, Mexico also imposed a 15% duty on sausages and a 20% duty on some prepared or preserved hams and shoulders.

With the recent proposed trilateral USMCA agreement, trade issues with Mexico have improved. Exports to Mexico, the U. S’s largest export customer, were down only 1%. 

 

High production
Pork production is expected to reach record levels in 2018 near 26.5 billion pounds, according to Hurt. That record is expected to be broken in 2019 when production may reach 27.3 billion pounds - another 3% increase.

The growth is despite higher costs in corn and soybean meal, according to Kyle Hurley, vice president of commercial lending for GreenStone Farm Credit Services, Berrien Springs, and former hog producer.

He cites an outlook from Purdue University that predicts swine finishing feed costs to be approximately 2% to 3% higher for the fourth quarter of 2018 and for 2019 than it was for 2017.

The increase in pork production is expected to be during an oversupply of all protein – beef, poultry and hogs, he adds. “We are producing more pigs per sow, and we’re still adding sows,” he says.

According to USDA, the average pigs saved per litter was a record high of 10.72 for the June-August period, compared to 10.65 last year.

Part of that growth in Michigan is being fueled by the new processing plant in Coldwater, which will soon be ramping up to full production.

Hurley says pork producers will likely continue increasing productivity per sow given advances in genetics and management practices.  “Combined with recent industry expansion, this increases supplies of pork, which need to be offset with increased demand for prices to allow farmers to remain profitable,” he adds.

 

African swine fever
The ongoing outbreaks of African swine fever (ASF) in China, Belgium and elsewhere have put a new twist on the markets.
African swine fever is almost 100% fatal to pigs, is highly infectious, and there is no vaccination against it. To make it even more of a global threat, the virus is difficult to destroy—it tolerates extremes of heat and cold and can exist on surfaces or in meat for days, even weeks. 

Currently, the U.S. has no reported cases and there is a great urgency in keeping it that way.  Because the virus can remain viable for many days, there is work being done to reduce disease transmission risk, such as knowing exactly how long certain feed ingredients have been securely stored before allowing their use on pig farms.

“We want to urge producers to be on top of biosecurity because this virus can live in a trip across the ocean,” Kelpinski says. “We’ve never had African swine fever in this country, so we have our national organizations working with USDA to be as prepared, and as preventative, as possible. We are encouraging pork producers to know where their feed is coming from.”

Kelpinski said there are three diseases that would cripple the industry and close borders: foot and mouth disease, classical swine fever (eradicated from the U.S. since 1978) and African swine fever. “It would eliminate exports in this country, which currently add about $50 to every pig sold because of export demand.”

Michigan’s hog and pig inventory climbs
Michigan's total hog and pig inventory on Sept. 1, 2018, was estimated at 1.22 million head, up 30,000 head from a year ago, according to Marlo Johnson, director of the USDA, NASS, Great Lakes Regional Field Office. Breeding hog inventory, at 120,000 head, remained unchanged from last September. Market hog inventory, at 1.1 million head, was up 3% from last year. 

United States inventory of all hogs and pigs on Sept. 1, was 75.5 million head, which was up 3% from Sept. 1, 2017, and up 3% from June 1, 2018. 
Breeding inventory, at 6.33 million head, was up 3% from last year, and up slightly from the previous quarter. Market hog inventory, at 69.2 million head, was up 3% from last year, and up 4% from last quarter. 

The June-August 2018 pig crop, at 34.2 million head, was up 3% from 2017. Sows farrowing during this period totaled 3.19 million head, up 3% from 2017. The sows farrowed during this quarter represented 50% of the breeding herd.

 

Wisconsin scales back on inventory
Wisconsin is gearing up to report inventory of all hogs and pigs in December. Looking back, there were 300,000 hogs and pigs on Wisconsin farms, according to the latest USDA National Agricultural Statistics Service Hogs and Pigs report dated Dec. 22, 2017. That inventory was down 10% from December 2016 with 335,000 head. Breeding hogs accounted for 45,000 head of the total inventory, while market hogs totaled 255,000 head. The annual pig crop was 772,000 head up 17% from last year, resulting from 81,000 sows farrowed during the December 2016-November 2017 period. The average pigs saved per litter was 9.53 for the period, down 1% from last year.

 

 



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