But results may not be cause for concern, experts say
By Kaitlynn Anderson
Staff Writer
Farms.com
The USDA’s projections in its Quarterly Hogs and Pigs Report may have left some producers worried for the future of their operations.
Hog and pig inventories in the U.S. reached 73.5 million head on June 1, the report revealed. This number is 3 percent higher than the inventories from one year ago.
“We’re looking at a lot of hogs and pork,” Ron Plain, professor emeritus at the University of Missouri, said during the Pork Checkoff’s media teleconference on Thursday. “I’m afraid we’re going to look at a considerable number of months with red ink going forward.”
The hog industry typically sees three years of growth followed by two years of contraction, and holds a long-term growth rate of about 1.5 percent per year, he said.
However, the industry has recently fallen out of this cycle.
“Right now, we’re looking at five consecutive years of pork production growing faster than that 1.5 percent (rate),” Plain said.
Some farmers may worry that the situation has similarities with the market downturn from 1998, which was the last year that hog inventories saw an increase of this size.
However, producers should not fear the current market, Joe Kerns, president of Kerns and Associates in Ames, IA, said during the teleconference.
The circumstances “are enough to put shivers in anybody,” Kerns said. “But this is not a replay of 1998. During that timeframe, we compressed shackle space capacity relative to animal numbers.”
Kerns offered additional facts to put the situation into perspective.
“The U.S. represents about 10 percent of the world hog supply. We are not the dominant force,” he said.
So, the industry will continue to put pressure on its trading partners to lower prices enough to allow it to clear the meat on the export market, he said.
To reach this point, Kerns held two assumptions. America must not see any further disruptions with Mexico in the NAFTA negotiations and the U.S. must “see some normalization of trade with China (to allow) variety meats to roll back through,” he explained.
While market outcomes may not be favourable to American producers, the changes will not be immediate.
“It’s going to be a prolonged downturn, but not a sharp V-bottom in the market like we saw in December 1998,” Kerns said.
Producers can watch for opportunities, such as through forward contracting, to protect their operations from downward price pressure, Lee Shulz, associate professor at Iowa State University, said during the teleconference.
In addition, operators may want to examine their cost situations and control any factors they can.
For example, producers can benefit from feed costs, which are relatively low right now, he said.
“The market will still offer some opportunities as we go throughout this marketing period, so I think it’s important for us to take advantage of those opportunities when we do see them,” Shulz said.
National Pork Board/Pork Checkoff photo