Dr. Steve Meyer, an economist with Partners for Production Agriculture told the World Pork Expo in Des Moines, Iowa in early June the number one hot topic for hog producers is the cost [high] of production. This includes grain prices in the world, driven by some energy policy with renewable diesel, and the situation in Ukraine has made that worse.
“And of course, we got record high grain prices, high production cost driven by demand and not crop failures. So that won’t change much for the next couple of years.”
On the flip side Dr. Meyer said pork demand is strong, and exports are down a little but strong to robust domestic pork demand keeping prices in the black so far.
He said the feed cost side starts with the subsidies and requirements for low emission diesel and renewable diesel in the United States driving up demand for soybean oil. Then, it drove the price of soybeans forcing corn prices to increase to compete for acres resulting in a record cost of production in the pork industry.
In addition, the cost of everything else went up. Lycine, vitamins, transportation, all of those things went up to push the cost of production up this year too.
“So, my model put the average producer in the United States somewhere near a dollar a pound carcass weight, US dollars on the cost of production today. Only three years ago the cost of production was 64 cents a pound of carcass weight.”
Meyer said African Swine Fever killed nearly a quarter of the hogs in the world starting with China in 2018 which was half of them and probably half of the hogs died in China.
“That changed the dynamic of the Chinese being in our market and any market for imports at that time. One problem is that we still don’t know what’s happening in China. We don’t have very good data, but ASF has impacted us.”
ASF impacted Europe with Germany out of the Chinese market. For Canada and the US, ASF hit the Dominican Republic and Haiti, which are not very far away. Puerto Rico is a huge concern for the US because the world restrictions on program diseases would treat Puerto Rico as a state of the US.
“If we got it in Puerto Rico, the buying countries could say nope, we’re not taking any US pork and that would be a huge disaster.”
ASF has a lasting effect on these trade relationships but has a lasting impact, as it’s become pretty much endemic in China, of them trying to recover their production and get it back up.
“I’m concerned the whole thing with ASF and the coronavirus and everything else in China has really hurt the Chinese, supporting demand and how long that might be the case.”
Canada, the US and Mexico must keep this disease out.
The long-term impact of COVID has changed how meat processors operate their plants; the biggest lasting impact will be mechanization.
“To my knowledge, I don’t think any robot has ever caught coronavirus. Plants are looking at places to mechanize and reduce their dependence on a labour force that’s fragile and smaller in the case of the United States.”
Meyer said Proposition 12 in California would raise the price of pork for Californians. Packers are making deals with producers to pay them more for pigs that will produce Prop 12-compliant pork passing it along to Californian consumers.
The record-high cost of producing pork in Canada and the US will put the onus on hog farmers to remain healthy and keep their capital together. Still, it will not be very profitable this year and probably not next. These costs are going to stay in place. That all depends on the strong demand, up six per cent.
He doesn’t see any significant growth because of not enough slaughter capacity. A few plants could add a shift, but who will work in them?
“We have a company that wants to build a new plant in Sioux Falls, South Dakota, but who’s going to work in it? And so there are a lot of question marks about future growth.” •
— By Harry Siemens
