Commodity Report: Pork Outlook
10/22/2020
Pork
 

Pork outlook includes measured optimism

Now that the brunt of the impacts of COVID-19 are largely absorbed, pork producers in Michigan, Wisconsin and across the country are looking to the future with “measured optimism,” says Kyle Hurley, vice president of commercial lending for GreenStone Farm Credit Services.

 

Hurley, who works with many pork producers in Michigan, says this year has been, by far, one the most challenging years to manage a hog farm. “This year has brought more concern and distress than in decades, perhaps ever,” he says. “Plant shutdowns from the pandemic greatly impacted prices – some producers couldn’t even get hogs into the processing plant for weeks. Thankfully, our producers were ultimately able to ship all hogs to market and are now current.”

 

Prices were distressed at a time when they would normally be trending upward. But that dark cloud is starting to dissipate, or so it’s hoped. “Today, prices are normal, if not better than ordinary for this time of year,” Hurley adds. “It’s the rebound from how bad it had gotten over the summer. Right now, cash prices are break-even or better for most producers.”

 

Chris Hurt, an agricultural economist with Purdue University, was predicting drastic producer losses this fall, but has since backed down some. He still thinks the year will close out with $10-$20 per head losses, but that there will be 2021 spring and summer profits of $5-$10 per head, according to a Brownfield Ag News interview.

 

Continued losses this year would be particularly damaging to growers who have endured a series of profitability and production challenges. “Their balance sheets are already stressed,” says Hurley, noting that most producers are cutting into equity and utilizing as many government assistance programs as possible. “For most, it’s been a tough year in a series of tough years.”

 

The hog price optimism is mostly due to the expectation that production losses due to African swine fever may force China to buy large quantities of U.S. pork.

 

As the industry has grown, U.S. hog producers have become more dependent on exports. “Nationally over 25% of the pork that is grown in the U.S. is exported,” explains Mary Kelpinski, CEO of the Michigan Pork Producers Association.  “As some of the trade agreements were being finalized this year, producers expected to see more profits and then came COVID-19 and that changed everything. COVID-19 disrupted the supply chain and caused the price for hogs to drop drastically. It has picked up some as China and other export markets have increased their pork purchases.”

 

Mexico, Japan, and South Korea are looked at favorably for future exports.

 

Strong hog industry

Michigan has 2,000 pig farms in the state that run the gamut in size from small hobby/niche farms to one operation that falls in the top 40 pig farms in the country, according to MPPA. The state markets over 2 million pigs per year, and that makes Michigan the 13th largest pork-producing state in the nation.

 

In Wisconsin, the annual pig crop was 1,085,000 head in 2019, up 29% from 2018, according to the latest USDA National Agricultural Statistics Service Hogs and Pigs report.

 

Uncertainty surrounding the pandemic—the extent and duration of lockdowns and risk of processing plant workforce infection in addition to low producer returns—may have influenced farrowing numbers downward.

 

Nationally, from June-August the 2020 pig crop, at 35.1 million head, was down 3% from 2019, according to USDA. Sows farrowing during this period totaled 3.18 million head, down 3% from 2019.

 

U.S. hog producers intend to have 3.12 million sows farrow during the September-November 2020 quarter, down 5% from the actual farrowings during the same period one year earlier, and down 3% from the same period two years earlier, according to USDA.

 

“The industry is starting to retract a little bit, not growing for the first time in several years,” Hurley says. “I do not expect to see much, if any, increase in the national sow herd, and likely a decrease, which may be necessary to support profitable margins.

 

“Our producers, and producers nationally, have continued to increase productivity per sow and that trend is likely to continue. There is a need for better alignment of prices that producers receive with the wholesale value of the pork produced within packer contracts, and this year is key evidence of that. Packers are also increasing their own production systems, which is a challenge for independent producers.”

 

New processing plant

Michigan has had modest growth in the industry, mainly due to the 2017 opening of the Clemens Food Group’s processing plant.

 

“I roughly estimate that two-thirds of the pigs grown in Michigan are processed at that plant,” Kelpinski says. “Prior to the opening, many small pigs were shipped out of state to be finished closer to the processors. Since the plant opened, we have seen new finishing barns built in Michigan.”

 

Clemens remained open when other processing plants shuttered because of ill workers. “Being the main processor for the state, we would have been in a lot of trouble if they had closed like many of the plants to our south and west, creating back-up and flooding smaller processors,” she adds.

 

“I was really impressed with how resourceful the producers were with finding extra space and slowing hogs down until the processors opened back up. We were very fortunate in Michigan that we didn’t have any large number of hogs euthanized. I worked along with MSUE and MDARD preparing for mass depopulation if producers ran out of other options.”

 

Aside from COVID, one of the biggest concerns right now is a foreign animal disease, according to Kelpinski, who says, “With China and now Germany seeing a spread of African swine fever, U.S. producers are worried the virus could get into our pig populations. We have invested a lot in research and biosecurity to protect our industry.”

 

For right now, Hurley says producers are feeling some relief after a particularly trying spring and summer. “They’re hoping there is more opportunity on the horizon. At least, there is not the same level of concern as the last few months. There’s hope the worst is behind them.”



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