DES MOINES — Despite supply and trade issues, economist Steve Meyer said he believes there is reason for optimism in the pork industry.
Meyer spoke to producers at the Iowa Pork Congress Jan. 23. He said a continuing outbreak of African swine fever in China has futures prices fairly high for this summer.
“They are sending a lot of pigs to market early so they don’t lose them to disease, so short-term they’re OK,” he said. “But after that, they are going to likely be significantly short of pork this summer. With the current trade situation, it’s unclear to what degree we will get to participate, so there is some risk there as well.”
Meyer said with estimated average break-even prices in the $63 per hundredweight range, producers should expect to make a modest profit in 2019. He said market numbers continue to grow, setting another record in December.
While the breeding herd grew in 2018, much of the growth came in the first quarter.
“We have been pretty stable with numbers over the last three quarters when it comes to sows,” Meyer said. “I think this trend will continue this year.”
He said with the opportunity in the futures market, producers ordinarily tend to follow a risk management plan to lock in those profits. But in the event the Chinese market opens up more and the trade pressure eases, prices could go into the $90s and even higher.
“On one end, we could see prices in the $90s. On the other end, if we end up with African swine fever here, we can see prices in the $20s or thereabouts,” he said. “Most producers will look at the possibility of the higher number and will be very hesitant to do a lot of risk management.
“It causes people to freeze, because they are afraid of making the wrong decision.”
Meyer suggested producers talk to their broker or financial adviser to explore all potential strategies. He said resolving the current trade dispute is vital.
“We need a trade solution, and that starts with ratifying the new USMCA (United States-Mexico-Canada Agreement),” Meyer said. “We need to move on the bilateral trade agreement with Japan.
“Canada and the EU will have advantages over us with the TPP (Trans-Pacific Partnership) or what it’s called now, and the EU’s bilateral agreement. We need to get something done.”