Uncertainty is changing the world we know
Remember, it was only a year ago we had $100 July hogs and most producers let that opportunity pass.
Steve Malakowsky, Compeer Financial
via National Hog Farmer - Mar 18, 2020
Never in my life would I have thought I would go into a grocery store and see empty shelves. As we all have seen the panic-buying set in, I have seen firsthand the empty coolers where pork, beef and poultry were always in abundance. I couldn't believe what I was seeing as the checkout line, with carts full of groceries, was halfway across the store.
I embarked on this trip to try and find hand sanitizer, disinfectants and toiletries, but to no avail. My problem stems from being one of the less panicked who didn't stock up on necessities, so now I am suffering the consequences. Please don't worry about me though as I will be just fine. We do, however, need to worry about the elderly and those with underlying health conditions. We all have a social responsibility to help defeat COVID-19 as fast as possible.
Everyone deals with adversity differently. It's been tough watching the stock market fall 28.5% in the past few weeks, but it is only a loss if you withdraw the funds and do not reinvest at the right time.
The same can be said for your own operations. What opportunity exists today? With all markets falling, is this an opportunity to put some options on for corn and meal? Should you lock up LP or fuel for your cropping operation? Don't lose sight of the opportunities that can help improve your bottom line once we get back to stabilizing markets.
Empty shelves in grocery stores throughout the country have created demand for all protein. Today the markets are finally starting to reflect this as they are limit up. I fully expect this demand to continue as restaurants are closed and people are buying everything they can stock up on. At the same time, it appears export demand is picking up dramatically as well.
After hearing Brett Stuart speak about profitability in China at the Pork Forum in Kansas City, I had a couple of key takeaways. He had mentioned that the average producer was making over $350 per hog. He also said that if the United States exports 11% of our product to China in 2020 and they continue to purchase product from other countries at their current levels, they will still be short of pork by 24 million metric tons! With that said, you still need a marketing plan in place and to be ready to execute this plan. Remember, it was only a year ago we had $100 July hogs and most producers let that opportunity pass.
Interest rate opportunity ...
Amid COVID-19 Fueled Market Uncertainty Consider Forward Pricing
Tyler Fulton - HAMS Marketing Services
Farmscape for March 20, 2020
The Director of Risk Management with HAMS Marketing Services says, amid the market uncertainty being created by COVID-19, forward pricing is an option to consider.
Market disruptions resulting from the turmoil surrounding COVID-19 and uncertainty over the ability to move pork into those regions where pork prices have been highest and pork supplies have been limited have been the biggest factor influencing North American live hog prices.
Tyler Fulton, the Director of Risk Management with HAMS Marketing Services, says producers need to remain disciplined.
Clip-Tyler Fulton-HAMS Marketing Services:
It's a new reality that we find ourselves in and I think that producers should probably lower their expectations and simply take some of that risk off the table for some of the time frames that they don't yet have priced.
I'm not saying you should do a large percentage of your planned production but into the third and fourth quarter of this year, when we expect that hog supplies are still going to be large and we might start seeing some constraints with respect to the processing capacity on those animals, it might start to make some sense to price in 25 percent of your production.
Maybe not at absolutely current prices but marginal improvements, something in the neighbourhood of around a 10 to 15 dollar appreciation, so 10 to 15 dollars higher than current prices for the fourth quarter per CKG.
That's a relatively modest recovery to start actually getting some greater protection just simply to take some risk off the table.
Even if there's not profits to be had there, at least there's some ideas that the losses won't be catastrophic.