The US pork industry will face challenges in coming months, but will have trade opportunities at the same time as uncertainty in global markets opens and closes doors.
That was a key part of the latest “Pork Quarterly report from RaboResearch, a division of Rabobank. The US/China trade dispute was expected to distort markets and weigh on North American pork values, while creating some upside potential for producers in Asia, Europe and South America.
The potential escalation of that dispute – along with ongoing North American Free Trade Agreement talks – creates at least a heightened sense of risk, Rabobank said.
Disease also is part of the potential market uncertainty. Rabobank included the risk of African swine fever spreading in Europe.
Because of the threats, agility will be a key asset for producers, the report said. Rabobank’s Five-Nation Hog Price Index showed a softening trend, suggesting potential weakness in near-term returns.
CHINA TRADE POLICY SUPPORTIVE – FOR CHINA
Steep hog price declines of 30% year to date were pressuring producer margins there as the market remains oversupplied, Rabobank said. The announced tariffs on US pork will help to stabilize that market near term, but likely will not offset market pressures fully.
For instance, the bank’s economists said China’s potential tariffs on US soybeans could add cost pressure for producers. They expected China’s hog producer losses to continue but gradually improve as the industry adjusts production to meet demand better.
China’s domestic demand for pork will remain good, helped by spring festivals and low costs, the report said.
RISING SUPPLIES PRESSURING EU PRICES
Production growth and weaker exports were expected to limit upside margins this year. Rabobank said gradual herd growth reflects good returns over the past year and a rebound in production.
The US was not expected to show a big pick-up in Chinese demand but could acquire some growth to Japan and South Korea.
The threat of African Swine Fever, and its risk to exports, continues to overhang the market, the report said.
US PRODUCTION, TRADE WEIGH ON MARKETS
Planned production growth in 2018 and subsequent seasonal production records, along with delays in the ramp-up of new capacity and trade disruption, soften the demand outlook.
Rabobank economists said they saw little immediate change in production plans, however, as the industry has built a financial war chest to withstand the current downturn. With NAFTA renegotiations underway and the trade war with China heating up, plans to add production may be reconsidered until there is improved visibility.
Meanwhile, a surge in exports to China and Hong Kong is helping to offset lost access to Brazil’s primary export market in Russia, Rabobank said.
Even so, Brazilian producers continue to struggle with weak pork and higher feed costs, they said.
CATTLE, BEEF RECAP
On the Livestock Exchange Video Auction Wednesday, 161 head sold for 1- through 9-day delivery at $122 per cwt, and 338 sold for 1- through 17-day delivery at $120.
Last Wednesday, cattle sold at $114 to $118 per cwt.
Cash trade got started Thursday at $121 to $122 per cwt on a live basis and moved to $122 to $124 by Friday. Dressed-basis trade was noted at $192 to $195, up $2 to $5.
The USDA choice cutout Monday was up $3.13 per cwt at $215.11, while select was up $1.59 at $201.72. The choice/select spread widened to $13.39 from $11.85 with 91 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Friday, was $138.57 per cwt, up $1.57. This compares with Monday’s Apr settlement of $139.02, up $1.72 and May’s close of $140.60, up $1.27.