In this file:
· Weekly Outlook: A bearish hogs and pigs report with few bright spots on the horizon
· Near-term disruption, long-term optimism for pork
Weekly Outlook: A bearish hogs and pigs report with few bright spots on the horizon
By Marianne Stein, Aledo Times Record
Jun 30, 2020
URBANA—Another all-time record hog inventory amidst the COVID-19 pandemic extends further downward pressure on prices. The USDA’s June Hogs and Pigs report places the June 1 inventory of all hogs and pigs at 79.6 million head, up 5.2% from a year ago. That’s just above the upper range of pre-report expectations and well above the midpoint of 3.7% higher, according to Jason Franken, agricultural economist at Western Illinois University.
“The number is up 2.6% from last quarter, just surpassing the previous record set last December, and is in general a continuation of the industry expansion since mid-2014,” Franken says.
“The higher-than-expected inventory is driven by market hog inventory, which at 5.8% higher than a year ago is also just above the anticipated range. Meanwhile, the breeding herd is down, but only 1.3%, compared to expectations of 1.8% lower. That is, producers’ response to low prices is not quite as strong as anticipated,” he adds.
The number of pigs in the heaviest weight class of over 180 pounds is up 12.8% from a year ago; notably less than pre-report expectations of about 17% higher, which offers some immediate relief as packers sort through the backlog of slaughter hogs, Franken notes.
“Any such relief will be short-lived, however, as much of the heaviest weight class should be ready for market by the end of June, and the 120-to-179-pound class is 11.8% higher than last year, compared to expectations of only 5% higher,” he says.
Both the 50-to-119-pound and under-50 pound classes are also larger than anticipated at about 103.4% and 99.8% of last year’s numbers, respectively, compared to expectations of 102.3% and 97.3%. In total, compared to a year ago, there are now 4.1% more hogs weighing less than 180 pounds, which will be the market hogs arriving at processing plants from July through November 2020
This growth partly reflects that the March through May 2020 pig crop came in 1.4% greater than in 2019, contrary to expectations it would be 1.3% smaller. It had 1.2% more sows farrowed and a record 11.01 pigs saved per litter—just surpassing 11.00 pigs per litter for the same period last year.
“With annual averages of 10.68 and 10.98 pigs per litter in 2018 and 2019, respectively, this year is on pace to continue the upward trend observed over the last decade. The larger pig crop should imply a similarly larger slaughter this fall,” Franken states.
“Farrowing intentions for the summer and fall are both down about 5% from last year, but these cuts may be a bit large with only a 1.3% reduction in the breeding herd, and hence, may underestimate actual realized farrowings,” he says. “Still, the numbers suggest that producers are responding to recent low prices and the likelihood that COVID-19 will continue to constrain slaughter rates and demand.”
If slaughter facilities that have reopened after shutting down due to COVID-19 concerns are able to continue processing at current rates, there is plenty of room in cold storage, as stocks were pulled down over the last quarter with those closures and lower rates of slaughter capacity utilization, Franken explains.
According to last week’s USDA cold storage report, cold stocks of pork on May 31 are down 24% from the previous month and 26% from a year ago. Similarly, poultry is down 5% from last month and 4% a year ago, while beef is down 13% from last month and 2% from last year.
“This could be particularly important if a softening of domestic demand becomes apparent from the income impacts of COVID-19,” Franken says.
“The USDA, in fact, has again revised downward its forecast of U.S. annual pork consumption by over a pound to 50.4 pounds per person in 2020 and bouncing back to 50.8 pounds per person in 2021. Prior to COVID-19, U.S. per capita pork consumption reached 52.4 pounds in 2019 or the highest it has been since it was 54.2 pounds in 1981. These hits to domestic demand make export markets even more important.”
U.S. pork exports are still expected to exceed last year’s levels, Franken notes. The U.S. exported a record of nearly 702 million pounds in March, largely due to shipments of 196 million pounds to China and Hong Kong or roughly three times the volume of a year earlier, along with 140 million pounds to Mexico (9.5% above last year) and 114 million pounds to Japan (18% above last year).
“These increases in March are on the coattails of recent trade deals with China and Mexico in particular, and do not reflect the temporary closures of several U.S. processing facilities, which appear to have slowed exports in April and likely into May. Still, these countries should continue to be important export markets for U.S. pork,” Franken says.
He explains that COVID-19 is expected to negatively impact U.S. pork exports through constraints...
Near-term disruption, long-term optimism for pork
Rabobank executive director says staying nimble in global trade markets will be key for U.S. pork industry.
Ann Hess, National Hog Farmer
Jun 30, 2020
Is the glass half-full or half-empty for the U.S. pork industry outlook? Christine McCracken, executive director of Animal Protein with Rabobank, says depending on how you look at it, it could be both.
"These are some of the toughest hurdles the industry has ever faced, but it continues to clear every one and has some out stronger," says McCracken, who kicked off the ninth annual Iowa Swine Day, this year a five-part webinar series. "Changes in the supply chain and export markets will force the industry to respond more quickly than in the past and if we don't, we may not survive. We need to reassure consumers not only that supplies of pork will be available in their outlet of choice, whether that is online or in store, but that they are safe and affordable. This has been made more complex in the last few years as so many of these sales are now outside the United States and face an increasingly challenging maze of challenges. Now more than ever we need to work with our export partners to make sure these channels remain open."
During her presentation, "Global influences affecting the outlook for U.S. pork," McCracken not only highlighted opportunities and issues ahead for the U.S. pork industry, but also for global pork production, which is expected to be down 8% by the end of 2020 due to herd losses in China and Southeast Asia from African swine fever
While the United States is seeing an overhang on supply, demand sluggish at foodservice and slow production cutbacks, other corners of the world are dealing with their own setbacks, McCracken says.
In Brazil, the pork sector is seeing rising feed costs, and soft local demand due to a spike in COVID-19, together with plant disruptions which are pressuring local hog markets. As a result, analysts expect local hog production to slow in the second half of 2020 and into 2021. In Southeast Asia where production is rising after significant losses in the last year due to ASF, hog and pork prices remain high. Even while the herd has been slow to recover, analysts have seen prices fall as imports help soften the blow. This market could see even more downside as COVID-19 has effectively stopped tourism, which will ultimately dampen economic growth and slow meat sales.
The European pork industry is facing many of the same issues as the United States. Demand is weaker due to COVID-19, which is creating a protein oversupply, and right in the middle of all of this the government is changing industry regulations.
"That's only increasing," McCracken says. "I do think with a few exceptions, they will continue to reduce production in areas like Germany, where that regulatory burden is becoming really problematic, and other areas."
The European region also continues to report outbreaks of ASF in Poland, some very close to the border with Germany. McCracken says she is increasingly convinced that a case of ASF in Germany is unlikely to disrupt trade with China as it continues to make progress on a regionalization agreement that would limit the impact. While the risks of ASF are still threatening EU producers, the loss of domestic demand due to COVID-19 is a far greater concern near-term.
"For the EU, the loss of foodservice has a much smaller impact than in the United States, as its overall exposure is less than 20%," McCracken says. She expects slower retail sales and a disappointing tourist season to be much more disruptive to the industry in the near-term.
She says the other key risk area for Europe is exports. Seventy-one percent of Europe's exports went to China in April, and with the recent decision by China to start blocking imports from plants with COVID-positive employees, McCracken says this could quickly become a serious issue for export-dependent European plants.
"This is a serious issue for Germany, where we've already seen a large plant delisted, but any country that relies heavily on exports to China would have similar risk. Spain, which supplies an estimated 18% of China's imported pork, is of particular concern although there has been limited disruption in its plants thus far," she says.
"European producers are responding to the weaker demand outlook by slowing production growth...
... However, China is still recovering from ASF herd losses. Rabobank analysts are forecasting a 15 to 20% decline in pork production in 2020...