The fourth quarter of the year is never kind to pork producers, but the worst may already be over.
Steve Meyer, economist with Kerns and Associates in Ames, says he expects prices to move sideways through the end of the year.
“I think we’ve probably seen our low for the year,” he says. “We are seeing lower slaughter numbers than we expected, and it looks like Mexico may be back in the ham market.”
Meyer says retaliatory tariffs may not have had the negative impact some anticipated.
“This trade spat is not as negative as we thought because exports are still up for the year,” he says. “Over the last six weeks, there have not been as many hogs as many thought we’d have, likely due to PRRS losses last spring. We’re not sure how USDA missed that.”
Lee Schulz, Extension livestock marketing economist at Iowa State University, says farrow-to-finish producers are losing about $8.50 per head. Break-evens are estimated at $62 per hundredweight on a lean basis, he says.
Schulz says prices over the fourth quarter will average between $53 and $57 per hundredweight, with prices in the low $60s over the first quarter of 2019. Prices should average around $70 over the second and third quarters.
“A lot pigs are already hedged, so the losses may not be as big for some producers,” he says.
Schulz says there could be weeks this winter where packer capacity could be challenged, but Saturday slaughter schedules will help.
He says feed costs are expected to remain low as the USDA forecasts a huge crop this fall.
“Even with all that grain, it’s never a bad idea to protect your feed needs,” Schulz says.
Despite lower prices, Meyer says most expansion plans are moving ahead.
“The futures market next summer has prices around $80, so that is saying you shouldn’t slow down,” he says. “There is certainly a hedging opportunity there to lock in prices.”
There are factors that may cloud that forecast.
“Trade is certainly a big issue. Over the long-term, we have to get everything figured out,” he says. “The news on NAFTA is certainly good, since export growth into Mexico has been growing.”
Competing meats could also hurt demand.
“Beef production is up, with 3 to 4 percent more beef out there,” Meyer says. “There are six poultry plants that will be online by 2020, so that industry is going to grow pretty substantially.”
The potential for African swine fever to reach U.S. shores could also take a bite out of the market, Meyer says.
He also has some concerns regarding the domestic economy.
“We’ve had a very long recovery, but there are storm clouds on the horizon,” Meyer says. “How deep will that next recession be?”