Fourth quarter fear of taxing packer capacity
All eyes on the Chinese market.
Steve Meyer, National Hog Farmer
Feb 10, 2020
"Forecast often!" is the mantra for all market forecasters. While it sounds like — and usually is — a monumental copout, the admonition is based on sound economics and decision making. Virtually all economic analysis aims at stating an expected outcome ceteris paribus or "other things held constant."
The rub, of course, comes in that other things are never constant. The environment we work in is always changing thus necessitating another run at the forecasting methods to see what the new result is under new ceteris paribus conditions. I'm not likely to garner any sympathy from non-economists with that explanation but weather forecasters know exactly what I am talking about. They and we are a miserable lot at times.
Last week was maybe the best and most maddening example I've seen in a long time of how things can change on a dime. Consider:
The week of Jan. 24 brought more news on the growing threat of
novel coronavirus and how it was exploding in China. Travel bans were imposed
on some large population centers, the government extended the new year
celebration to keep people at home, factory output declined, shipments of
products within, into and out of China slowed. Chinese pork importers told U.S.
suppliers to send what was on the way but stop further shipments. Most U.S.
suppliers responded to those orders. Several stopped boxing frozen carcasses
and put those carcasses into their fabrication lines where the products were
likely headed for the domestic market. Agony and despair won the day.
Last Thursday the importers said, "Never mind — send it
on." Included in that message was Tyson Foods and its now company-wide
supply of ractopamine-free pork. Tyson has been selling to China, but the
presumption is that they will do a lot more volume now and their CEO confirmed
that in comments last week. June Lean Hogs futures recovered from the $9.55
six-day beating it had taken and by Friday afternoon, five-days later, has
recovered $3.275 of that decline.
Newly published export data for December confirmed what we
believed: China bought more pork than ever from the United States. December
shipments of 222 million pounds carcass weight equivalent broke the previous
month's record and dwarfed historic levels of pork trade with China (see Figure
1). December's shipments to China/Hong Kong were up 546.8% from last year and
left annual exports at 1.027 billion pounds carcass weight, 160% larger than in
2018. Shipments to other markets except for Canada, Columbia and Chile were
lower for the year (see Figure 2). Total U.S. shipments hit 6.321 billion
pounds carcass weight in 2019. That figure is record large at 7.7% larger than
one year before and represents 22.9% of total U.S. pork production.
Those same export figures provided the last data we needed to
determine how pork demand fared in 2019, and the answer is "Stellar!"
Real per capita expenditures on pork finished the year on a bit of a downer,
coming 3.3% short of last December's figure. But total RPCE for the year finished
at plus-4.5% (compared to plus-1.2% for beef and plus-0.3% for chicken) putting
annual RPCE for 2019 at $186.70 (2014 dollars), the fourth largest ever. (See
Figure 3). U.S. per capita pork consumption was up 3% in 2019 while the nominal
retail pork price gained 2.7% and the real (deflated) pork price gained 0.8%.
Higher quantity and higher price equal higher demand.
· Chinese hog prices recovered to over 36 Chinese yuan per kilogram last week and have risen further since. Many think they are headed back to their previous record near 42 yuan per kilogram. Chinese chicken prices have tanked since January as consumers have apparently agreed with this author that chicken is a poor substitute for pork. While an outbreak of avian influenza may have confused the coronavirus issue, it did not likely influence the chicken price decline since that started before the avian influenza outbreak.
So what do I think after all of this?
First, demand both at home and abroad is terrific...
Second, in spite of all of the difficulties, China has been a huge customer...
Third, hog prices didn't fare as well...
But the past is the past so what about the present? ...
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