Market Dynamics with Steve Meyer

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Hog slaughter numbers are large, but pork producers remain current in their marketing. Kerns and Associates Economist Dr. Steve Meyer offers insight into the hog markets in this edition of Pork Pod. Exports are better than expected. However, the risk of African Swine Fever provides significant uncertainty to this marketplace.


Don Wick


Steve Meyer, Economist, Kerns and Associates




Don Wick: 00:15 From the Pork Checkoff in Des Moines Iowa, it’s Pork Pod. Pork Pod, a look at the hot topics in today’s pork industry. The Pork Checkoff is working for you through various forms of research, promotion, and consumer information projects. I’m Don Wick speaking on behalf of the Pork Checkoff, and today our guest is Dr Steve Meyer, who is an economist with Kerns and Associates. And Steve, as we take a look at this hog trade, we’ve been looking at some pretty big numbers, it seems, as far as hog slaughter. Can you bring us up to speed on where we’re sitting?

Steve Meyer: 00:31 You compare actual slaughters to what the USDA September Hogs and Pigs Report would suggest, we should have killed a whole lot more pigs so far this year, this fall. than we have. That difference from September 1st through October 19th was somewhere in the neighborhood of 700,000 pigs that USDA said were out there that haven’t shown up. Now there’s probably 250 to 270 thousand of those that were left in North Carolina during hurricane Florence and they’re working through those slowly. They’ve got some limitations from wastewater treatment and such that limits how many Saturdays they can work. So we’ve got some big hogs there. But the rest of the country, the hogs are, we’re very current, I mean actually barrow and gilt weights on the producer sold mandatory price reporting data last week went down and are below a year ago. So that says that we’re current and yet we’ve run well behind what USDA said was out there on September 1.

Steve Meyer: 01:28 So, right now it’s sort of looking like they just missed the 180 and over and maybe even part of the 120 – 179 pigs. We’ve been closer to their numbers the last couple of weeks and we’re still gonna run big numbers. I mean we’ve got 2.6 million in for this week. We’re not going to quite get there because we had a plant that had some operating difficulties, well actually the city had some operating difficulties with the water system on Monday and Tuesday. So we’re going to be a little short of that, but the rest of the year we’re going to be in the 2.6 range. We do think that the September Hogs and Pigs Report, it probably took any 2.7s out of the mix. Now, you know, I calculate Don, I calculate an availability based on the USDA report. Week to week, you’ll get some fluctuations like this situation Monday and Tuesday or maybe somebody adds an extra Saturday that’s going to bump around that. But right now we’ve got the high week of the year a 2.691 in mid December.

Don Wick: 02:21 When you talk these kinds of numbers, you talk about how current we are, it’s really important these guys stay current, isn’t it?

Steve Meyer: 02:27 Well, it is, it is important they stay current. Now we’re not against any kind of real tight slaughter capacity situation this fall. They’re ramping up the second shift at Sioux City. They were, they’d been in the high 3000 range the last two or three weeks and we understand they are going to add some to that, at least over the next three or four weeks. So and the two new plants, you know, that plant and the one in Cold Water, that they’re still adding a few there. We’ve got the plant in Windom, Minnesota that’s running back up to around 5000 a day. So we don’t have a real tough slaughter constraint that really imposes that, that currentness, but we still need to be current just to keep the tonnage off the market, to be very honest. And so I think staying current is a good deal.

Steve Meyer: 03:11 Now, it’s usually not hard to stay current when you’re projecting prices that are lower. Okay, and that people, obviously, if they’re going to be cheaper next week I might as well sell them this week. And so we think that prices are going to slide a little bit into the end of the year. We don’t see any big debacles here. We think that the December Hogs and Pigs Report is probably too low, especially relative to the index right now. The index is near 64 bucks. And so, I think the incentive here, is going to be try and get {inaudible} marketed.

Don Wick: 03:41 So on the demand side of this market, we’ve obviously been paying a lot of attention to trade as of late. What are we seeing as far as moving pork internationally?

Steve Meyer: 03:51 Well, it’s been, it’s been, in my opinion, has been remarkably good! We were up 6.3 percent through August. China’s been off big, but we thought China was going to be off pretty big even without the trade situation developing. The real hurt, I think on the China side has been on variety meats. I think that’s been a problem. And so, you know, getting those lined out would be good. The tonnage going to Mexico has still been good. In fact, I think they kind of had to buy our hams, but the price of those hams has gone down. And if you look relative to a model that I put together with historical data, it’s been almost precisely 20 percent. Isn’t that interesting? I wouldn’t think they could extract all of that tariff out of the price that they pay, but it looks like they’ve done a pretty good job of it.

Steve Meyer: 04:39 So we’re still moving the tonnage, which is good because we don’t have it backing up in cold storage, but the price impacts are there. Now we’ve got, supposedly, have an agreement with the Mexicans and the Canadians, but we’ve got to get the details hammered and get it signed. And then I think those tariffs would go away. So exports have really been quite a bit better than what we thought. We had forecast 6 percent for the year. They are up 6.3 through September. We’re probably going to settle back in toward that 6 percent number. I think, you know, if we can get some solution with, with Mexico and then the Chinese tariff situation, and then you’ve got African swine fever on top of that. I mean, you know, next year could be really explosive. I’ve never seen as much risk on both sides of the market here, I mean, to the top side we have, you know, if this thing in China just continues to blow up, we probably got a pretty good topside left in the market for next year. On the other hand, if we were to contract ASF in the United States, the downside is huge. And so you see a lot of volatility in the market and option premiums are really high and so it makes it kinda tough to manage.

Don Wick: 05:47 You mentioned China, seems to be a little bit more optimism that Trump and Xi will meet at least on the sidelines of that G20 summit in Argentina later this month. Even if they could get something put together, how quickly would it mean to start getting US pork into Chinese ports?

Steve Meyer: 06:05 Well, I think it’d be pretty quick if we get something put together. I mean, you don’t have, you don’t have to worry about them ratifying it, I guess, you know, because the head man makes the deal. I think it’d be pretty quickly we’d see some optimism and then maybe drop those tariffs. And especially if their needs for pork get as large as what we think they might be. I mean they’ll have a pretty strong incentive to get rid of those tariffs so they can bring this stuff in at a reasonable cost because everything that I hear, Don, is that they’re not going to control African swine fever. And this is the meat, they eat 88 pounds of pork per person. They eat 10 pounds of beef and 17, 18 pounds of chicken, so if you start taking away their pork, I mean there’s not just a whole lot left on the, from the protein standpoint for the Chinese citizens to eat. And so I think they’re having had a pretty strong incentive to get rid of the pork tariffs right away.

Don Wick: 07:03 Steve Meyer from Kerns and Associates. Thank you for listening to this edition of Pork Pod. For more information on this topic or the Pork Checkoff itself, visit