Steve Meyer, who is with Kerns and Associates, spoke at the recent National Pork Industry Forum. Meyer outlines the price outlook for the swine industry. The low feed costs are one of the positive parts of the story, but Meyer does anticipate some financial stress within the industry. More details are available in this edition of Pork Pod.
Steve Meyer, Economist, Kerns & Associates
Don Wick: 00:16 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 Steve Meyer from Kerns and Associates. Meyer was among the speakers at the National Pork Industry Forum in Orlando. And Steve, obviously let’s start by taking a look at the outlook. What’s your thoughts in where we’re going with this hog market?
Steve Meyer: 00:33 Well, I think we were poised for an okay year this year, let’s put it that way. We were never quite as optimistic as what the futures market was at the end of the year. I think they built in a pretty big African swine fever premium into the summer contracts. And of course most of that is gone now. We’re back to more of a fundamental model. We still have hogs up in the low seventies this summer. Obviously a real benefit for all producers is grain cost right now, I mean, the best producers out there in the low sixties, the average producers are probably in the upper sixties on breakeven costs. And so if you lay that down on top of the board prices right now, that average producers had a breakeven year this year, the best producers would probably make somewhere in the $7 – 8 a head range.
Steve Meyer: 01:19 So not a bad year, not a great year. And the problem is that that breakeven year for average producers comes on top of some other breakeven years or even small loss years in 2018. And so, we think there’s going to be a little financial stress on the average producer out there. The good ones are still going to be in pretty good shape. A lot of it depends on what happens with China though. I mean, there’s been a lot of, you know, there’s a lot of speculation out there and, and all that speculation is probably true. I mean, they’re losing millions of pigs. It’s lots worse than what’s been reported. And at some point that’s going to leave them short of protein and they’re going to have to probably do something. Now, we’ve got these tariffs in the way right now, but we keep hearing that maybe by the end of the month we’re going to have a deal done that gets those out of the way and that would be a big deal. So, we still think the second half of the year could be better than what the futures are showing right now. But some things have to resolve themselves with China for that to happen.
Don Wick: 02:16 What kind of advice would you have for pork producers? What should they be considering right now as they go about their marketing?
Steve Meyer: 02:21 Well, as far as hogs go, I mean, I think they would need to be watching pretty closely on trying to find a strategy that can put a floor under this price and leave the top side open. You know, heaven forbid if African swine fever comes here, we would have 23% too much pork the next day. And that means you’ve got prices, you know, anywhere from 60 to 80% lower in my opinion. I mean that’s pretty big bunch. So I think downside protection is pretty important here. Even if it’s kind of deep out of the money, maybe it only protects your cash cost or something. So, you know, but get yourself protected in some fashion on the downside. Now, the challenge on that is doing that at a reasonable cost and still leaving some of the top side. There’s still some option strategies that will get that done and producers need to sit down with their marketing advisors and find out what those ones and what fits them best. But, doing nothing I think is a very, very risky situation in this kind of environment.
Don Wick: 03:21 I’m curious, Steve, what’s the most common question you seem to get from pig farmers here at Forum and others that you’re visiting with?
Steve Meyer: 03:28 Oh, what do we do for the summer? The rest of the year? Yeah. That’s the big thing that we get. I mean, there’s not a lot that we can do on the grain side. You know, we had a great crop. The South Americans are harvesting a great crop. We’re kind of a wash in beans. We’re almost a wash in corn. We’re two bad crops away from having expensive feeds. So I don’t think there’s much to do there. It’s all on the revenue side. And so I think the important thing is always operate your farm efficiently and find those places where you’re not doing a good job and get better. And then the second one would be try to put a floor under these prices and leave some top side in it.
Don Wick: 04:06 Steve Meyer from Kerns and Associates, always with great insight into this hog market. Thank you for listening to this edition of Pork Pod. For more information on this topic or the Pork Checkoff itself, visit pork.org.