Pork farmers are expected to see profits in the second and third quarters of 2019
By Kate Ayers
Staff Writer
Farms.com
While pork producers will continue to see low prices for the remainder of this year and early 2019, market analysts expect prices to rise above production costs in the spring and summer.
Throughout the winter, record pork production and trade disputes will weigh on prices. Production is expected to rise by 3 percent for the rest of this year and into 2019. This increase can be attributed to higher farrowing intentions and higher litter sizes compared to earlier in 2018, a farmdoc daily report said last week.
Trade disputes between the United States, Mexico and China have limited American pork exports and sales. However, the trade situation looks much brighter when viewed in a global context, the report said.
The reasons for this optimism include:
- total pork exports are up 6 percent
- the signing of the United States-Mexico-Canada Agreement mitigates some trade conflicts with Mexico and Canada
- renewed trade discussions with China could support hog prices
- African swine fever (ASF) remains an issue in China, which could result in the country importing more U.S. pork and meat products to make up for its deficit
The spring lean hog futures are bullish even with the potential record pork production in 2019, the report said. This enthusiasm could be based on strong demand from a continuing strong world economy, expectation of trade dispute resolution, and ASF in China increasing global pork sales.
“The futures price premiums for mid-2019 are extremely high compared to nearby futures,” the report said. For example, the July 2019 lean hog futures closed in on US$84 on Nov. 30, which is nearly US$26 higher than Dec. 2018 futures.
July prices are the highest the industry has seen in several years. This summer, the trading price peaked at US$80 per head for lean hogs. However, in the third-quarter of 2018, hog prices averaged US$44 per head.
Prices may rise slightly next year but will remain low for the next few months.
“My estimated total cost of production is around $50 currently and that may go up to $51 in 2019 with higher corn process and higher labor, interest, and building costs,” Chris Hurt, a professor in the department of ag economics at Purdue University, said in the report.
“Given current optimism in the lean hog futures for 2019, prices for the year would average near $50 compared to near $46 in 2018. That means 2019 would be a year near breakeven for farrow-to-finish producers.”
farmdoc daily photo
Indeed, producers can expect losses in the first and fourth quarters but may see offsetting profits in the second and third quarters.
Overall, the U.S. will see record pork production next year and farmers need more export markets and strong demand support. Otherwise, they could face another year of losses, the report said.
National Pork Board and the Pork Checkoff photo, Des Moines, IA, USA photo