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Hog markets may see slow recovery

Hog markets may see slow recovery

COVID-19 shocks to the pork industry caused long-term backlogs and downward pressure on prices

By Jackie Clark
Staff Writer
Farms.com

The evolving economic situation caused by the COVID-19 pandemic created the perfect storm to drive North American hog and pork prices downward.

“It’s been a bit of a roller-coaster in terms of prices and the goings-on in the industry since COVID-19 hit,” said Abhinesh Gopal, head of commodity research at Farms.com Risk Management.

Prior to the pandemic “hog prices were already dropping” due to market access issues, Gopal explained. At the onset of COVID-19 “there was that knee-jerk drop.”

At first it seemed as though hog markets may recover quickly from the initial drop in all markets because of the demand for meat. Though restaurants closed, there was a strong demand for meat in the retail sector.

“That led to a soaring cut-out value for pork,” Gopal said. “Cut-outs are wholesale prices. … If you have a soaring wholesale value, that leads to higher margins for the packer. Since the packer margins are strong, they demanded hogs.”

However, COVID-19 outbreaks among many processing and packing plants led to shutdowns.

“A lot of the hogs got backed up on the farms,” Gopal said. “That led to an oversupply of hogs and euthanasia of some of those hogs.”

That euthanasia is ongoing, and some experts predict it may continue until September.

“Because of the essential nature of the industry, the packing plants came back online fairly quickly, but nevertheless the disruption that happened led to quite a bit of backup,” Gopal said. The industry is still trying to clear backlogs.

Backlogs in the United States impact Canadian farmers directly if they ship hogs to the Midwest for processing, and indirectly through the closely tied markets.

Overall, “there was a recovery in prices due to that demand from the retail sector, but then the situation with the packing facilities closing down, that led to prices dropping again,” Gopal explained.

The U.S. Department of Agriculture’s quarterly hog and pig report showed a record inventory of hogs in the U.S., primarily market-ready hogs.

Not only is there a backup of pigs, but there’s more pork on those pigs.

“If you have hogs backed up on the farms … they get fatter. So when these animals now go for slaughter, they are big and heavy,” Gopal said. There is more pork production for a given hog slaughter, which also puts pressure on pork prices.

“Basically, you had more hogs and heavier hogs which was expected and caused futures to drop below recent supports,” Gopal explained.

“The good thing is, the economy is reopening,” he added. “Which also means demand from the hotel and restaurant sector is slowly coming back.”

Prices are starting to recover because the industry has confirmed numbers of hogs, which removes some uncertainty, plus demand is increasing as economies are opening back up.

Industry officials expect recovery to be slow.

“People are not encouraged to gather in big numbers. A lot of that group barbecuing and getting together and grilling is much more subdued,” Gopal said. However, as society opens back up “the summer demand will help.”

Export markets also provide “a bright spot as far as demand is concerned,” he added.

China has been purchasing pork from the United States.

“We need to convert that buying into actual shipments; we don’t want (China) to cancel. There’s still a big concern overhanging the trade deal between the U.S. and China. Nonetheless, Chinese buying is a relief,” Gopal said.

In summary, the three positive impetuses for recovery of hog markets are reopening of restaurants, strong retail demand, and Chinese buying.

Uncertainty still exists.

“There’s the fear of a second wave (of the pandemic) and also the increasing numbers of COVID cases. That (concern for safety) has caused a disruption or a pause in the reopening activities in the U.S.,” Gopal said.

However, “likely the worst is behind us,” he said. “Prices should improve from where we are, unless we get another COVID shock.”

Jevtic\iStock\Getty Images Plus photo


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US Soy: Pig growth is impaired by soybean meal displacement in the diet

Video: US Soy: Pig growth is impaired by soybean meal displacement in the diet

Eric van Heugten, PhD, professor and swine extension specialist at North Carolina State University, recently spoke at the Iowa Swine Day Pre-Conference Symposium, titled Soybean Meal 360°: Expanding our horizons through discoveries and field-proven feeding strategies for improving pork production. The event was sponsored by Iowa State University and U.S. Soy.

Soybean meal offers pig producers a high-value proposition. It’s a high-quality protein source, providing essential and non-essential amino acids to the pig that are highly digestible and palatable. Studies now show that soybean meal provides higher net energy than current National Research Council (NRC) requirements. Plus, soybean meal offers health benefits such as isoflavones and antioxidants as well as benefits with respiratory diseases such as porcine reproductive and respiratory syndrome (PRRS).

One of several ingredients that compete with the inclusion of soybean meal in pig diets is dried distillers grains with solubles (DDGS).

“With DDGS, we typically see more variable responses because of the quality differences depending on which plant it comes from,” said Dr. van Heugten. “At very high levels, we often see a reduction in performance especially with feed intake which can have negative consequences on pig performance, especially in the summer months when feed intake is already low and gaining weight is at a premium to get them to market.”

Over the last few decades, the industry has also seen the increased inclusion of crystalline amino acids in pig diets.

“We started with lysine at about 3 lbs. per ton in the diet, and then we added methionine and threonine to go to 6 to 8 lbs. per ton,” he said. “Now we have tryptophan, isoleucine and valine and can go to 12 to 15 lbs. per ton. All of these, when price competitive, are formulated into the diet and are displacing soybean meal which also removes the potential health benefits that soybean meal provides.”