After US/China trade talks broke down over the weekend, and Mexico threatening trade retaliation for tariffs, large losses for hog producers are a real possibility, said Chris Hurt, agricultural economist at Purdue University in this week’s “Farmdoc Daily.”
Add to that large pork supplies and rising costs, and Hurt expected losses to continue through this year and into 2019. Losses were expected to be small this summer, “but then the bottom falls out,” he said. Losses of more than $25 a head were estimated for the last quarter of this year and the first quarter of 2019.
Pork production this year is up nearly 4% with the number of head coming to market about 3% higher and weights up nearly 1%, Hurt said. Domestic and export demand have been good this year, but not strong enough to offset the higher supplies, resulting in 3% lower hog prices.
In the January-to-May period of 2017, the live hog prices for 51% to 52% lean carcasses averaged $48.74 per cwt. This year, the price was about $1.75 lower, around $47.
TRADE CONCERNS MOUNT
Trade concerns continue, but exports have remained favorable, yet data show pork exports growing by almost 6%, on track with USDA estimates for 5% growth.
US retail demand also appears positive, with retailers selling pork at $3.75 a pound, compared with $3.69 last year.
“The ability to sell a higher volume of pork at higher prices is an indication that consumer demand has strengthened,” Hurt said.
However, a smaller portion of those retail dollars are getting to pork producers, he said. Retail margins have widened, but packer margins dropped after plant capacity was enlarged over the past year.
In the midst of all that, the pork industry is caught up in trade disputes, Hurt said. The Trump administration has chosen to use threatened tariffs as a means to voice trade-policy concerns. Steel and aluminum tariffs have already been implemented.
Retaliation, then has come from the EU, Mexico, Canada and China in the form of tariffs on US exports to their countries. For pork, the gravest concerns are Mexico, which purchased 32% of US pork export volume in 2017. Canada and China each bought 9%, and the three countries purchased one half of all 2017 pork exports, the total of which accounted for 22% of US pork production.
Pork supplies were expected to be up 4% this year, but may moderate to 3% growth over the winter, Hurt said. Hog prices were expected to average near $50 per cwt in the second quarter, in the low $50s in the third quarter and around $43 in the fourth. This will provide an annual average price of $48, versus $50.50 last year.
Costs were seen higher in 2018 as labor, interest, fuel, machinery and feed prices rise, with Q4 losses seen around $29 a head.
CATTLE, BEEF RECAP
Only 225 head of fed cattle sold Wednesday on the Livestock Exchange Video Auction at $110 per cwt, versus sales four weeks previous at $122.40.
Cash cattle traded last week at $110 to $111.50 per cwt on a live basis, steady to up $1.50 from the previous week. Dressed-basis trading was seen at $177 to $178, steady to up $1.
The USDA choice cutout Monday was up $0.04 per cwt at $227.57, while select was up $1.45 at $206.25. The choice/select spread narrowed to $21.32 from $22.73 with 92 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Friday, was $139.23 per cwt, up $3.06. This compares with Monday’s Aug settlement of $144.85, down $1.47.