The pork outlook started this year on a downbeat. Then in March and April markets recognized that African swine fever in China could cause global pork shortages and lean futures. Industry optimism sailed upward.

Summer lean futures exceeded $100, but cash prices could only reach the low $80s. Futures came tumbling down. Then in June hog numbers surprisingly surged almost 9 percent.

We are left with three key questions.

  • What will happen to pork supplies in coming weeks and months?
  • Will U.S. pork exports grow by enough to support stronger prices?
  • How will feed costs impact profits?” For that we will review the latest Hogs and Pigs report.

Pork production increased 4 percent in the first half of this year. But the market didn’t foresee about 9 percent more hogs coming to market in June. The latest U.S. Department of Agriculture’s “Quarterly Hogs and Pigs” report reflected the large increase. Producers told the USDA that they had 8 percent more hogs in the 180-pound-or-more weight bracket in early June. Those represented animals that came to market in June and early July.

After the surge of hogs in June and early July, the report indicates that market hog inventories then was 3 percent greater for all weight categories including baby pigs. If that’s correct, it means the surge in hog numbers should be nearing an end, with numbers sliding closer to the 3 percent increase in coming weeks. With weights perhaps 1 percent more, that means pork supplies in the second half of the year will be about 4 percent more than the same period in the previous year.

Producers indicated they have expanded the breeding herd by 1 percent. They also intend to keep farrowings unchanged this summer and fall compared to a year ago. That means pork supplies would only increase about 2 percent to 3 percent in the first half of 2020. The increase would be driven by more pigs per litter and by heavier marketing weights.

Pork-export growth may lead to stronger hog and pork prices even into 2020. USDA analysts now expect 2019 pork exports to increase by 10 percent – and then by another 7 percent in 2020. Using USDA estimates, pork exports this year will reach 23.7 percent of U.S. production. That’s a potential new record, exceeding the 23.2 percent previous record in 2012. The USDA estimate for 2020 exports is 24.6 percent of U.S. production – or almost a quarter of all pork production.

Leading the way is China, who has once again been contracting for U.S. pork. Most of it for this year is still unshipped. In 2017, the last calendar year before the trade conflicts, China purchased 23 percent of U.S. pork-export volume. That decreased to just 14 percent in 2018 with trade conflicts.

At mid-year 2019, China has commitments that represent 29 percent of total U.S. pork-export commitments. That makes China the biggest 2019 export customer for the United States at mid-year. Mexico is in second place with 26 percent of export sales.

Actual exports to China are expected to increase in coming months. Official Census data for January to April show the volume of exports to China decreased 16 percent. But May shipments increased 33 percent. Those large increases are likely to continue into the summer and hopefully into the fall, given all the pork China has contracted.

But all is not well for U.S. agriculture because trade issues with China continue to evolve. In recent days Chinese authorities have suggested that their agricultural-product purchases from the United States could be targeted for reductions if U.S. demands for intellectual-property-rights reforms are not lightened. That “ups the ante” as China tries to increase its bargaining position by further threatening more economic pain on U.S. agriculture. For pork it could mean that the aggressive purchases of U.S. pork in the past few months could quickly fade, providing yet one more reason for weaker hog and pork prices.

Live-hog prices were depressed in the first quarter of this year, when they averaged about $41. That’s far less than the $50 estimated cost for farrow-to-finish production. The sharp rebound in the second quarter to about $58 moved production back to strong profitability. Prices are expected to average on the upper side of the mid-$50s in the third quarter of 2019 and on the lower side of the mid-$50s in the last quarter.

Prices could be stronger in 2020 if supply growth remains moderate as currently expected, and if exports expand. Live prices are expected to average in the mid-$50s for the first quarter of 2020 and then increase toward $60 for the late spring and summer.

Corn costs will increase to cut into profit potential. Corn prices based on the U.S. average farm price received for the calendar year were $3.47 per bushel in 2018. That’s $3.97 for 2019 and $4.28 for 2020, based on current basis-adjusted futures.

Soybean-meal prices at Decatur, Illinois, averaged $345 per ton in 2018. They’re expected to decrease to about $315 this year. At this writing futures markets are only expecting a modest increase in cash meal prices for 2020, to about $325 per ton. Feed prices are likely to be volatile because there’s uncertainty about planted acreage and final yields.

Estimated costs increase from $50 per live hundredweight in early 2019, before weather issues, to $55 in the summer of 2020.

After estimated losses of about $12 per head in 2018, hog producers will make money in 2019 – but only $2 per head. So given all the uncertainties profit doesn’t seem assured. The current outlook is for stronger hog prices in 2020 that would provide estimated profits of $10 per head.

The pork industry outlook this year has already had multiple swings. Uncertainties for the future remain large. The industry faces opportunities to export record volumes of pork. But it also faces continued trade issues with China that could restrict the level of those pork-export sales and shipments.

Feed prices remain uncertain as markets and the USDA get a better grip on planted acres and yields. Hog producers say they’re keeping breeding-herd expansion at a reduced level. But there has been a recent tendency for expansion to be more than indicated in the Hogs and Pigs reports.

Chris Hurt is an agricultural economist at Purdue University. Visit ag.purdue.edu for more information.