With all farm organizations cancelling or postponing their AGM’s and producer meetings this spring, producing food and business continues.
Despite the current market disruptions resulting from the global reaction to COVID-19, Tyler Fulton of H@MS Marketing Services said hog producers should stay the course on existing marketing strategies.
The one overwhelming factor influencing hog markets right now is the impact of actions to halt the spread of COVID-19 on demand for pork.
Fulton, who is H@MS Director of Risk Management, said the market is hugely uncertain about where pork demand will move except for a massive hole in supplies in Asia due to African Swine Fever that is fillable if logistics line up.
There’s a great deal of uncertainty associated with the demand considerations, but the COVID-19 is disrupting the ordinary course of life in North American and around the world.
The industry won’t know the implications on demand for months, so the best thing the industry can do is stay the course.
“I think the market will clear unless there are some logistical bottlenecks because there’s a major price difference between Asia and North America,” he said. “North American demand for pork is still excellent, but we don’t know how COVID-19 and the actions to reduce its spread will affect pork markets specifically.
Fulton said up until about the second week in March, and the hog markets were very resilient, getting useful positive information from stable exports to China. However, when it became apparent that the COVID-19 implications could have an impact on logistics, that’s when the hog markets turned lower.
He said the hog market has remained among the more resilient markets.
During that same period, slaughter hog numbers increased in the United States, running at the highest slaughter levels ever seen for this time of year. Typically slaughter numbers start to ease off a little bit. It reflects that the US producers have ramped up production.
“We’re still in the middle of that trend, where there’s no end in sight, in terms of the increases in production that we can expect.”
He said the US is managing with the new plants and greater use by double shifting one of the two big, new plants that recently came on stream. There is some concern for the fourth quarter of 2020, but there are creative ways to get a little bit more freeboard. There is potential for some plants in North Carolina, to ramp up more slaughter and be shipping whole carcasses or primal cuts.
“So I don’t think it is doom and gloom, but I think we’re approaching a level where it could be a concern eight to ten months from now.”
Even before the industry knew the extent of the coronavirus fallout, the hefty supply kept a cap on cash hog prices, much more so than anticipated for this time of year. Most analysts expected to see year over year number increases but thought the increased export potential would overcome those increases. Running at production levels a lot closer to full capacity utilization than anticipated kept a lid on cash hog prices.
Fulton said in early March, they saw the severe impacts from the development of the Coronavirus, while no direct effect on hog production anywhere, it threatens export demand. There is a lot of concern about the grand economic impacts that Coronavirus may have globally, and that uncertainty has put pressure on futures markets.
He said producers with a plan would benefit from a structured approach to gaining protection for their hog prices, he said. Something reasonable and consider the whole picture, which includes the heavy supplies here in North America, the apparent hole that developed from African Swine Fever in China and other countries, and now, the new dynamic of the Coronavirus and its impact.
“Producers should have lower expectations than what they did three months ago, just strictly because Coronavirus has the potential to disrupt normal marketing signals,” he said. •
— By Harry Siemens