WASHINGTON, June 15, 2016 - Two questions could be worrisome for U.S. pork producers in the fall: What will rising grain prices do to their feed costs, and will meatpackers have the slaughter capacity to help producers and consumers alike bring home the bacon.
That’s the message that Steve Meyer with EMI Analytics brought to last week’s World Pork Expo and expounded on in a recent interview with Agri-Pulse. He said that depending on the weather during the growing season, the rallies in grain prices could continue after September through the end of the year, compounding the challenge to slaughter capacity for hog producers.
Corn and soybean prices have been on price rallies, for the most part, since March. Since the beginning of that month, the December corn contract has increased about 15 percent, and the November soybean contract has shot up about 33 percent. Meyer says the increases – which could also affect feed costs for beef and poultry production – have a lot to do with weather concerns across the Corn Belt.
“It all depends on weather,” he said. “This crop looks tremendous right now. If you drive across Iowa, there’s no justification for this rally.”
“I understand there’s concerns about La Niña and all those kind of things,” he added, “but right now if we get some normal rain in June and July, I don’t see how these prices will hold.”
USDA’s National Agricultural Statistics Service says that as of June 12, 96 percent of this year’s corn crop – projected to be the biggest ever – had emerged from the ground, slightly ahead of the five-year average of 94 percent. Soybeans are also ahead of schedule at 92 percent planted and 79 percent emerged, both ahead of 5-year averages.
Meyer says because of the way many producers contract for their feed in advance, some may not be hit by price increases even if the rally were to hold. He says it might be a good idea for livestock feeders to do some risk management to make sure that they don’t feel the full brunt of higher-priced grain.
But no matter the cost of feed in the fall, producers might have a hard time getting in the door of a processing facility once their hogs are finished due to concerns about slaughter capacity.
Meyer said the industry ran into this problem for about two weeks last year, but thinks it could last as long as six weeks this fall. When that happens, he said, worker shifts can run longer, stress to the plant can increase, and all of those things can hit a producer’s bottom line.
“(Costs associated with a delay) tend to drive a bigger wedge between the product value and the hog value,” Meyer told Agri-Pulse. He estimated a market price impact of $4-$5 from last year’s slowdown and said that wouldn’t be out of the question again this year, depending on how long a potential capacity problem might last.
On top of all of that, the hogs that are waiting for slaughter keep eating and gaining weight, only further exacerbating a meat glut and “you end up with bigger supplies of pork than you would otherwise,” he said.
“I hope I’m wrong on that… but we think the numbers are going to be large enough to cause some problems.”
Even with the concerns about the potential for increased feed costs and decreases in slaughter capacity, Meyer says his analysis still suggests that there’s room for a pork producer to make money in 2016.
“It looks to me like this is going to be a profitable year,” he said. “Not wildly so, but somewhat profitable, and we think there’s some growth (in the hog population) out there.”
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