High Risks or High Rewards?

High Risks or High Rewards?

(Des Moines, Iowa – Jan 23, 2019) –

For pork producers, 2019 is an unusually tough year to forecast, with uncertainty that could bring sharply higher hog prices but poses financial danger if you have an average operation that netted about $4 per head last year.

That’s how veteran economist Steve Meyer of Kerns and Associates sees it.

“I’ve never seen in my professional career, a situation so rife with risks on both ends of this market,” Meyer said during a presentation at the Iowa Pork Congress in Des Moines.

steve meyer
Steve Meyer

The negative risks are daunting. Meyer listed these:

–An export-blocking disease. Top of mind is African Swine Fever, which has devastated China’s hog industry and is spreading in Europe.

–No progress in the trade battle with China, the world’s largest consumer of pork and one expected to need more pork imports later in 2019 if the disease continues to spread and pork supplies diminish.

–Delays in opening new pork processing plants.

–Labor shortages in packing plants and elsewhere in the pork industry.

–The effect of expected lower beef and broiler prices on pork prices.

–A slowdown in the U.S. economy. Meyer pointed out that the International Monetary Fund is still forecasting strong global economic growth in 2019 but some economic indicators show the potential for the start of a recession in the U.S. in late 2019 or 2020.

Yet, the positive possibilities for 2019 are striking, too.

–Strong crop production in South America could keep feed costs even lower; especially with good production in the U.S. and large U.S. soybean stocks.

–More pork needed by China. “That would be a huge positive,” he said. He expects China to increase pork imports in the last half of 2019. The U.S. would benefit if trade resumes with China.

–A resolution to the trade battles. The first thing needed is ratification of the U.S. Mexico Canada Agreement (USMCA). “That would be low-hanging fruit,” Meyer said. Even with trade disputes, Mexico was the top importer of U.S. pork last year, helping push U.S. pork exports to record levels in 2018. But Mexican buyers paid lower prices to offset tariffs.

“Overall it (2018) was a pretty good year for exports, given all the headwinds we had,” Meyer said. With a resolution of trade disputes, 2019 could be even better.