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It’s boom or bust for the pork industry in 2020. Watch out for the 4th quarter
2020 will be the best of times or the worst of times for the U.S. swine industry, says economist Steve Meyer, Kerns and Associates. Successful Farming caught up with Meyer at the Iowa Pork Congress to see what he forecasts for the year.
SF: What’s top of mind today for the swine industry?
SM: Continued uncertainty about China and the certainty of high hog numbers this fall with not enough places to kill them. We are still growing the sow herd. We haven’t slowed down.
SF: What should producers be doing right now?
SM: Good producers can lock in $28 a head for the year, average producers $18. Take advantage of soybean meal prices. Look seriously at corn. We think corn could go up.
Get coverage of some sort for the fourth quarter for sure, and probably the third quarter. Use a strategy that leaves the top side open, an option strategy of some sort. We are scared to death of the fourth quarter. There will be more hogs than we can slaughter. We were there this fall, and we are going to be worse next fall.
SF: We have new packing plants.
SM: They are full. There is not going to be a double shift at Prestage. By April, they should be full on their first shift. They don’t have any workers. The Coldwater [Clemens] plant is the same. We will gain about 2,300 head a day in the new Minnesota plant when it opens. The Wholestone plant won’t be double shifted until late 2021 or 2022. There’s nothing else in the works.
SF: Are you hearing of new sow farms being built or is it just productivity gains?
SM: It’s both. The productivity gains are more important because they are broader than just a new sow farm. That 3% year-over-year growth rate will keep up through the second quarter and then it will back off to 2%, because you are comparing to a bigger denominator in the calculations, but we don’t see it slowing down very much. The genetics are there to produce 33 to 34 pigs per sow per year.
Everybody is gaining. Right now the health situation is about as good as it’s been in a long time. We could have an ugly PRRS, a new mutant of PRRS, which happens periodically, pop up and knock a big hole in production pretty quick, but I don’t see it right now. There is this circovirus C that is causing some problems in some places, but it is not a PRRS.
SF: What does the African swine fever situation in China mean for U.S. producers?
SM: It could mean a lot. The hole is massive. They are going to be short, even with their added imports and reduced consumption. They are still going to be short 7 million tons this year and we produce 12 in the United States, so the hole is massive, but I don’t think they’re going to fill it. I think they are just not going to eat as much.
That doesn’t mean they are not going to import. I have exports up 26% this year, and I am still scared about the fourth quarter. That could be 50%, who knows, but so far China has underwhelmed us from what we thought when the disease broke.
SF: What about the new trade agreement announced this month with China?
SM: The new agreement doesn’t have anything specific to help us, other than we are going to sell billions of dollars worth of ag products. They did agree to have a critical review of ractopamine with beef and pork, but that won’t happen very fast. We are already not feeding ractopamine, so from an export standpoint it doesn’t do us any good. The beef industry will probably start raising more cattle without ractopamine.
SF: What is the health of the industry financially?
SM: Still pretty good. Even though we’ve lost money in the fourth quarter the past two years, we’ve made money much of the rest of the time. If you are a half decent hedger you made more than the cash market. And we still have a pretty big war chest from the PEDv years. Some producers who are higher cost and have had multiple health situations in the last five years, are in financial trouble. Not everybody is healthy. On average, the industry is still pretty good, but there are some producers in tough shape.
SF: Do we need more contract finishing barns?
SM: With this productivity gain, we need more finishing space. We got weights down a little bit this year because of that.
SF: Will 2020 be a good year for U.S. pork producers?
SM: Feed costs are going to be OK. If we didn’t kill a crop last year, we may never kill one. The weather was bad the whole year and we raised a record crop. Don't ever underestimate the ability of the U.S. farmer to produce anything, grain or pigs.
If we have low feed costs and China starts buying pork, it could be a bumper year. But I’ve been burned already in trying to forecast what China is going to do.
SF: What happens if we get ASF here?
SM: It would be an unmitigated disaster. On the day that hits, we’ve got 25% too much pork in the U.S. The practical implications of the stop-movement deal will be severe. It all depends on where they find the virus. If they find it in California, that is different than Iowa or North Carolina, where there are lots of pigs moving around. Oklahoma or Texas wouldn’t be good, because a lot of pigs are shipped to Iowa.
The key is how long until you find the first case. If you find it quick, you have a fighting chance.