Hog Market Outlook, May 2018

Posted on

Steve Meyer, economist, Kerns and Associates, outlines the seasonal decline in hog numbers and the demand outlook. Meyer also considers the current trade situation and its impact on the hog market

Host

Don Wick

Guests

Steve Meyer, Economist, Kerns and Associates

Length

07:53

Transcript

Don Wick: 00:01 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, economist with Kearns and Associates. Steve, certainly we see a seasonal decline in hog numbers as we get into the spring. Somewhat needed to the first quarter had been somewhat disappointing.

Steve Meyer: 00:30 We think a lot of that has to do with the five I think pretty large snowstorms that moved up the east coast and disrupted purchases and disrupted food service trade pretty severely. We no one major national chain, the rest of their business was up for the first quarter, but the northeast was down like five percent. And so, um, you know, when somebody doesn’t go shopping this week, they don’t go buy twice as much next week. And uh, uh, we think that that’s really kind of hurt demand up there and disrupted and put pressure on the wholesale market and doing so. Cold storage is not out of line near the five year average, significantly higher than last year because of much larger belly stocks, but we just haven’t been able to find much of a footing here on this cut out. Um, you know, it is early May. I mean, we frequently have a rally the first half of May, even the whole month of May and we still think that we could have that on this, but, um, we think that, you know, about the best you can get out of this as maybe some hogs up around the eighties now. And uh, you know, all that talk of three months ago, that $90 just this summer, we think he’s pretty much out the window.

Don Wick: 01:42 As you take a look at the, the supply situation, you’re saying we should be seeing a decline year numbers as you’re moving forward and each spring months.

Steve Meyer: 01:50 Well, we should, I mean, just the seasonal decline in slaughter is we go into the summer, you know, it hasn’t declined very much yet. A weights did come down pretty sharply last week and that helps, uh, we think that you’re going to get some days in the eighties and the midwest this week and that’s kind of the first warm weather, you know, a hog gets used to the sixties and you’re hitting with 80 years. It’s probably like a 93 day in the summer and they’re probably not going to eat a lot. And so that’s going to slow them down. We’re going to see weights go down. We think that part of the reason we had those extra hogs in the first quarter was exceptional performance is winter. Every producer we’ve talked to, just that great performance. And so that means that we, we really pulled hogs forward without changing the weights any and that would mean that we ought to get a little tighter. It will go into June and July and bottom out in July. And then it’s, then it’s upward and onward for slaughter this fall. And we could have some 2.7 million head weeks, uh, as we get into November and December,

Don Wick: 02:52 Steve I think these feed costs are higher than, than some had anticipated going into this point in the season. What’s that doing to the margins, our producers?

Steve Meyer: 03:06 Well It’s certainly hurting, not only do we have hog prices lower, cost higher than we’ve seen in about three years. Um, our for our model has probably 10 or 15 percent of the producers out there. We’ve got average costs for the year now at a 65 that was 61 back in February. We still think that there’s probably a little bit of panic in this, in this, um, this gray market because of the cold weather in the wet weather. Um, you know, there was a lot of corn planted last week. We know some corn this up in Illinois of May. I don’t think it’s early enough to really panic on that. Um, the, the tariffs on soybean meal we don’t think had much impact at this point because China was going to be buying soybeans from us anyway. And so we think there’s still some room for this, this gray market to come down in, whether develops this this summer and that’s, you know, every other year I’ve ever known in other weather markets and uh, we’re in one now a little more uncertainty because of trade, but these costs, they’ve run up a bit here.

Steve Meyer: 04:08 If we get normal weather though, and most of the forecast are saying very close to normal temperatures and maybe a little extra more than normal precipitation for the summer, you know, that kind of talk has record yields on it and uh, you know, that that would be in the, in the, in the possibilities. And if that’s the case, then we’ll see these costs come back down. So not out of hand by any stretch not 80 dollars plus like we had in 2013 and 2014. But higher than we’ve seen in a couple of years.

Don Wick: 04:38 You mentioned China and soy meal. Obviously we’re looking at the trade situation between US and China were following what’s going on with the Nafta trade talks. What kind of consideration was that? Having this industry as we move forward?

Steve Meyer: 04:57 Well, it’s huge, the China one is not huge. I tend to ascribe to the idea that China is perpetually our next great market. OK. And the key word there is perpetually, I’m the tariff have very little impact on our muscle cuts, exports to China because they weren’t going to buy from US anyway. They’ve got plenty of pork on and uh, their, their prices plummeted this year, the lowest in several years. And so they’ve got plenty of pork available now. We think that it could have some impact on US hog values through byproducts. Uh, China is our number one customer for pork variety meats. Hong Kong is number two and everything we hear is, they’re going to watch the back door trade pretty closely here. And so if you, uh, if you put a tariff on a price-sensitive item and they buy 30% of our total exports, Hong Kong buys, another 30%.

Steve Meyer: 05:58 Mexico buys 27%, add that up and it’s almost 90% percent. And so there’s a lot of alternative market for intestines and liberals have bumps, all those kinds of things that go in their head and that makes up the latest calculations somewhere around $80 a head. So we think that that will be the impact, the place we’re answering impact on hawk values it and we haven’t felt it yet. Um, I think it’ll take a little while to do that and hopefully everyone will come to their senses and we will solve this thing. The more important one though is Nafta. It without a question. Mexico is our number three, variety meat customer, number one muscle meat customer. Um, they are a critical to US exports. They take about 40 percent of our total exports. That number has been rising steadily in recent years. They were the only real growth export market that we have. And so, uh, the Nafta is far more import to the US pork industry than the China situation. And so, uh, we think that that’s the one that we have to watch very closely. And you know, all depends on what the latest news report says on how that’s going.

Don Wick: 05:58 Anything we are missing we should touch on Steve?

Steve Meyer: 07:06 I don’t think so. I guess I would make one point that, you know, our calculations for pork demand had been very good this year. We don’t think this is a demand issue. We think there’s been some demand disruption just because people couldn’t get to the store or the restaurant, but we think the tastes and preferences, incomes are going up like economy’s strong. So we think the demand side is pretty good here domestically. If we can keep these markets open, uh, on the international side. And uh, at some point producers need to think about how fast they’re growing here. Uh, it’s not just one of those things, they’ll buy it all at a profitable price, no matter how much we make here, and we’re starting to push that limit.

Don Wick: 07:48 Steve Meyer with Kearns and Associates, thanks to you for listening to this edition of Pork Pod. For more information on this topic or the Pork Checkoff itself, visit pork.org

Don Wick: 00:01 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, economist with Kearns and Associates. Steve, certainly we see a seasonal decline in hog numbers as we get into the spring. Somewhat needed to the first quarter had been somewhat disappointing.

Steve Meyer: 00:30 We think a lot of that has to do with the five I think pretty large snowstorms that moved up the east coast and disrupted purchases and disrupted food service trade pretty severely. We no one major national chain, the rest of their business was up for the first quarter, but the northeast was down like five percent. And so, um, you know, when somebody doesn’t go shopping this week, they don’t go buy twice as much next week. And uh, uh, we think that that’s really kind of hurt demand up there and disrupted and put pressure on the wholesale market and doing so. Cold storage is not out of line near the five year average, significantly higher than last year because of much larger belly stocks, but we just haven’t been able to find much of a footing here on this cut out. Um, you know, it is early May. I mean, we frequently have a rally the first half of May, even the whole month of May and we still think that we could have that on this, but, um, we think that, you know, about the best you can get out of this as maybe some hogs up around the eighties now. And uh, you know, all that talk of three months ago, that $90 just this summer, we think he’s pretty much out the window.

Don Wick: 01:42 As you take a look at the, the supply situation, you’re saying we should be seeing a decline year numbers as you’re moving forward and each spring months.

Steve Meyer: 01:50 Well, we should, I mean, just the seasonal decline in slaughter is we go into the summer, you know, it hasn’t declined very much yet. A weights did come down pretty sharply last week and that helps, uh, we think that you’re going to get some days in the eighties and the midwest this week and that’s kind of the first warm weather, you know, a hog gets used to the sixties and you’re hitting with 80 years. It’s probably like a 93 day in the summer and they’re probably not going to eat a lot. And so that’s going to slow them down. We’re going to see weights go down. We think that part of the reason we had those extra hogs in the first quarter was exceptional performance is winter. Every producer we’ve talked to, just that great performance. And so that means that we, we really pulled hogs forward without changing the weights any and that would mean that we ought to get a little tighter. It will go into June and July and bottom out in July. And then it’s, then it’s upward and onward for slaughter this fall. And we could have some 2.7 million head weeks, uh, as we get into November and December,

Don Wick: 02:52 Steve I think these feed costs are higher than, than some had anticipated going into this point in the season. What’s that doing to the margins, our producers?

Steve Meyer: 03:06 Well It’s certainly hurting, not only do we have hog prices lower, cost higher than we’ve seen in about three years. Um, our for our model has probably 10 or 15 percent of the producers out there. We’ve got average costs for the year now at a 65 that was 61 back in February. We still think that there’s probably a little bit of panic in this, in this, um, this gray market because of the cold weather in the wet weather. Um, you know, there was a lot of corn planted last week. We know some corn this up in Illinois of May. I don’t think it’s early enough to really panic on that. Um, the, the tariffs on soybean meal we don’t think had much impact at this point because China was going to be buying soybeans from us anyway. And so we think there’s still some room for this, this gray market to come down in, whether develops this this summer and that’s, you know, every other year I’ve ever known in other weather markets and uh, we’re in one now a little more uncertainty because of trade, but these costs, they’ve run up a bit here.

Steve Meyer: 04:08 If we get normal weather though, and most of the forecast are saying very close to normal temperatures and maybe a little extra more than normal precipitation for the summer, you know, that kind of talk has record yields on it and uh, you know, that that would be in the, in the, in the possibilities. And if that’s the case, then we’ll see these costs come back down. So not out of hand by any stretch not 80 dollars plus like we had in 2013 and 2014. But higher than we’ve seen in a couple of years.

Don Wick: 04:38 You mentioned China and soy meal. Obviously we’re looking at the trade situation between US and China were following what’s going on with the Nafta trade talks. What kind of consideration was that? Having this industry as we move forward?

Steve Meyer: 04:57 Well, it’s huge, the China one is not huge. I tend to ascribe to the idea that China is perpetually our next great market. OK. And the key word there is perpetually, I’m the tariff have very little impact on our muscle cuts, exports to China because they weren’t going to buy from US anyway. They’ve got plenty of pork on and uh, their, their prices plummeted this year, the lowest in several years. And so they’ve got plenty of pork available now. We think that it could have some impact on US hog values through byproducts. Uh, China is our number one customer for pork variety meats. Hong Kong is number two and everything we hear is, they’re going to watch the back door trade pretty closely here. And so if you, uh, if you put a tariff on a price-sensitive item and they buy 30% of our total exports, Hong Kong buys, another 30%.

Steve Meyer: 05:58 Mexico buys 27%, add that up and it’s almost 90% percent. And so there’s a lot of alternative market for intestines and liberals have bumps, all those kinds of things that go in their head and that makes up the latest calculations somewhere around $80 a head. So we think that that will be the impact, the place we’re answering impact on hawk values it and we haven’t felt it yet. Um, I think it’ll take a little while to do that and hopefully everyone will come to their senses and we will solve this thing. The more important one though is Nafta. It without a question. Mexico is our number three, variety meat customer, number one muscle meat customer. Um, they are a critical to US exports. They take about 40 percent of our total exports. That number has been rising steadily in recent years. They were the only real growth export market that we have. And so, uh, the Nafta is far more import to the US pork industry than the China situation. And so, uh, we think that that’s the one that we have to watch very closely. And you know, all depends on what the latest news report says on how that’s going.

Don Wick: 05:58 Anything we are missing we should touch on Steve?

Steve Meyer: 07:06 I don’t think so. I guess I would make one point that, you know, our calculations for pork demand had been very good this year. We don’t think this is a demand issue. We think there’s been some demand disruption just because people couldn’t get to the store or the restaurant, but we think the tastes and preferences, incomes are going up like economy’s strong. So we think the demand side is pretty good here domestically. If we can keep these markets open, uh, on the international side. And uh, at some point producers need to think about how fast they’re growing here. Uh, it’s not just one of those things, they’ll buy it all at a profitable price, no matter how much we make here, and we’re starting to push that limit.

Don Wick: 07:48 Steve Meyer with Kearns and Associates, thanks to you for listening to this edition of Pork Pod. For more information on this topic or the Pork Checkoff itself, visit pork.org