The trade situation, global demand for pork, and African Swine Fever will influence hog markets in 2019.

Tyler Fulton, the Director of Risk Management with h@ms Marketing Services advised pork producers to take advantage of profitable futures prices by forward contracting a limited portion of their production.

Fulton said despite consistently record high fourth quarter slaughter numbers, the slaughter was probably not quite as high as initially expected so it was a little bit more manageable and prices have stayed firmer than they otherwise would have.

“We saw record hog slaughter in the U.S. in the fourth quarter of 2018. The week previous to Christmas, we saw the largest ever weekly slaughter that exceeded 2.7 million hogs. That’s a huge one-week production,” he said. “It was largely packers kind of pulling hogs ahead of schedule, adding some shifts before the holidays came in, but what it does is it provides a bit of insight into how many hogs they can process in a given week when push comes to shove.”

Fulton explained the highlights and market implications of the USDA’s quarterly Hogs and Pigs report December 20 for the fourth quarter.

“The USDA tends to release that fourth quarter report a bit early to avoid that whole Christmas timeframe. But there wasn’t a lot of surprises in it,” he said. “I think one of the things, which I guess stuck with me, was that we are expecting to see a larger breeding herd, in which the breeding herd was up close to two per cent higher than year-ago levels. If we project that forward into the latter half of 2019, then we can anticipate another year of record large hog slaughter and pork production. Assuming that we see the carcass weights come in at least comparable to what they did last year.”

Fulton said regarding all the different categories; there wasn’t any significant surprises. There was a little bit of shifting concerning the number of hogs in lighter weight and heavier weight categories. But when you smooth the whole thing out, there weren’t any big surprises on the report at all.”

He doesn’t seem to think there are any real issues in balancing hog production with pork processing capacity moving into 2019.

“I think the bigger question is going to come from the trade situation throughout the next six to eight months. We need to get a resolution to the Mexican applied pork tariffs in retaliation to the steel and aluminum tariff that the U.S. has applied not only to Mexico, but to Canada as well. But the trade issues there are probably likely to trump any concerns that I would have over slaughter capacity, I think.”

Fulton said demand is the critical thing and if the demand growth continues and that upward trajectory of improving demand on both the domestic and export markets, the prospect looks excellent. The packers saw profits in 2018.

“And when the packers are profitable and the producers, I think in general, across the year producers can say that they were likely profitable, but the downturn in August and then again later in the fourth quarter did make it a bit tougher,” he said. “But I think when you look at the year as a whole, it was marginally profitable and hopefully that those demand gains will lead into some improved prices in 2019 if we continue to see kind of the same trend in demand growth that we have over the last two or three years.

The African Swine Fever is the big wild card, and much is up in the air with China reporting close to 100 cases. The latest one affected a farm that had 70,000 animals, and officials were forced to cull a good portion of those pigs. That was by far the largest farm so impacted by the disease in China or anywhere else in the world.

“I guess to what degree the domestic Chinese market is going to be short of pork, and whether or not the United States and Canada will be able to fulfill any shortfall in that Chinese production. Largely because the U.S. is still struggling with getting any resolution to the trade war over the last six months between China and the U.S.,” said Fulton. “So, U.S. pork is facing more than a 60 per cent tariff in China, and it’s probably not the best positioned to fill in some of that last domestic production that may come as a result of the ASF development.

“So we think that the forward prices right now based on current feed prices represent a fair level of profitability. We’re definitely on the plus side for at least the first ten months of the year,” he said. “The real question mark is how does the African Swine Fever and trade issue play out? And so what we think is that it’s prudent to go and take some protection, especially based on recent rallies. Just secure some of that good, profitable pricing for the first 10 months of the year, but on a relatively small portion of your hogs, around 25 per cent and then you can set targets for larger portions of your production, if we see some improvements to prices as a result of some these trade issues coming to fruition.” •

— By Harry Siemens