Tyler Fulton, the Director of Risk Management with Hams Marketing Services, is hopeful Chinese demand for U.S. pork will lead to higher hog prices in 2020.
Despite the record, U.S. slaughter hog numbers prices are holding steady since the start of 2020.
Fulton said retail pork values in North America are steady to strong over the past four to five years, so most people are looking to the export market for further price improvement.
“There is an expectation that we’ll see increased movements of pork to China, especially after the new signing of the U.S. — China trade deal. I’m still somewhat skeptical as to what that impact will be. Still, people believe the U.S. for example, could increase their shipments to China to close to a million metric tons of pork in 2020, which would represent a big improvement and likely see some pretty significant price increases,” he said.
“That’s really the million-dollar question, at what price level in China do people start pulling back, do companies start pulling back from purchasing because the prices have gotten so high? Part of the problem is that those punitive tariffs that China applied to the U.S., there’s still no timeline as to when those will disappear,” stated Fulton.
Fulton said the government-owned marketers in China have an advantage in that they can get rebates off those tariffs while private companies will be disadvantaged.
“There are a lot of moving parts, but there is a reason for optimism that we could see some big improvements in export volumes and consequently improvements in prices.”
In an earlier interview, Fulton said overwhelmingly, the hog supply is pressuring the cash and futures markets. Consequently, depressing the forward prices that Western Canadian hog producers can contract.
Producers are dealing with lean hog futures that are the primary input into a forward contract price, which they convert into Canadian dollars. Since the U.S. futures are under severe pressure due to the record ample hog supplies, they’re not seeing many opportunities to the price at better levels than five or six months ago.
Fulton said the main issue right now is the cash hog market and how many hogs there are, adding pressure at a time when typically hoping to see the increased flow and increased positive price influence coming from the increased exports.
However, Fulton recommended producers take a disciplined approach to forward pricing. Further to the concerns expressed, a combination of record U.S. hog production and the shortened Thanksgiving-Christmas holiday slaughter schedule reduced North American live hog prices. This pressure was during what’s typically and seasonally the highest production time frame of the year.
“Forward prices have come down sharply in line with the cash market. I expect to see some huge volatility, and so I would think that we will get a better opportunity to do some forward pricing further into 2020,” he said. “Several producers have some protection into that time frame that are at good profitable levels. We’re projecting to be profitable from April or May of 2020 and beyond. So really, it’s just about taking incremental increases in portions of your production and pricing them at ever-increasing profitable levels.”
He added, “That means pricing 10 percent of your production at 10 percent higher than the current prices and then again the next ten percent at probably some increment higher than that and stay disciplined with that plan of adding protection as the prices improve.”
Fulton said the whole North American herd is taken up in China alone due to African Swine Fever, and that overlooks the losses in Vietnam, the Philippines and other places.
“We need to figure out every way possible to lower the barriers from the U.S. and Canada into Asia to access some of that market to get a more equitable balance between the two continents, producers, and packers currently in North America,” he said. •
— By Harry Siemens
