Farms.com Risk Management commodities analyst reviews possible implications
By Kate Ayers
Staff Reporter
In light of the RaboResearch Food & Agribusiness prediction of continued U.S pork industry expansion through 2025, Farms.com connected with Farms.com Risk Management to learn the implications for producers and processors.
“The U.S. hogs and pork industry has seen quite a few new key developments this year – most importantly, the U.S. pork processing capacity expansion in the Midwest,” Abhinesh Gopal, commodity research analyst for Farms.com Risk Management, said to Farms.com in a recent email.
“We also saw a run up in pork belly prices to new record levels this year, which signify shifting consumer preferences from lean meats to more flavourful meats, like bacon.”
The Rabobank study stresses the importance of export growth and demand to support the industry’s growth. But Gopal noted some challenges on this front that may be detrimental to U.S. pork exports.
“There are some dark clouds hovering over U.S. and meat export demand. The trilateral North American Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico is being renegotiated … The dismantling of NAFTA is a risk, especially for the meat trade,” said Gopal.
Mexico and Canada contribute significantly to American exports, representing a total of 41 per cent of the U.S. export market. There is also concern over trade with South Korea and China. Altogether, these four countries purchase 60 per cent of American pork exports, he explained.
And global competition may also be rising, thanks to production growth in countries that are big importers from the U.S.
“China's hog herd is equal to more than half of the world total. (This country’s production) is expected to return to growth in 2018 for the first time in six years, driving a further decline in pork imports from record highs,” Gopal noted.
However, pork producers can start preparing now for industry growth.
“As long as pork processors (packers) are able to find good packer margins, they will demand more hogs. This (situation) will prevent hog producers from getting hog supplies backed up on their farms. Pork processors will see strong packer margins if exports and domestic demand stay robust,” Gopal explained.
Producers should keep a close eye on market developments and to be ready to sell when the price is right, Gopal suggested.
“(Farmers) should look to sell the strength in prices and control costs by booking corn and soymeal feed when they are at their lows. Making time to take marketing decisions will become all the more important now.”
Although expansion of pork packing capacity is positive, Gopal and the study warned that the industry has to remain mindful of oversupplying domestic and international demand, which could hurt packer margins.
“To keep pork demand buoyant, the industry will have to improve competitive positioning in key export markets. And (the industry must) pay keen attention to export product offerings – promote appropriate (in-demand) meat cuts in each market,” said Gopal.