There are some bright spots at the end of the field, but for the most part, U.S. pork producers have a long row to hoe before a comfortable level of profitability returns. As always, the outlook contains both challenges and opportunities:
Exports have remained strong despite the strong dollar, but other markets like the European Union have gained a foothold. And as of press time, the future of the Trans-Pacific Partnership was still up in the air.
Grain prices will help keep production costs in line, but pork prices will be pressured by limited slaughter capacity and a glut of protein on the market.
Bacon steadily rides its surfboard on a towering wave of popularity, and now pork belly takes its place as a trending food, but activists and other non-governmental organizations won’t stop trying to get the consuming public to eat less meat.
To put it bluntly, every yin has its yang.
In this article and in other articles this week industry experts share their thoughts about the current economic, political and societal environments, and what you can expect in 2017 and beyond.
U.S. Exports Will Determine Price Level
The repeal of mandatory country-of-origin labeling (mCOOL), low U.S. pork prices, and relisting of plants for export to China are encouraging indicators for U.S. producers, despite a strong dollar. China is the world’s largest producer of pork, but it is expected to import even more product next year. Pork prices have been low in China and its growing economy allows Chinese consumers to add more meat to their diets. In fact, China has already become the world’s largest pork-importing country this year, snatching the spot held by Japan for more than two decades.
“Unfortunately, the U.S. pork industry was able to capture only a small portion of China’s import demand,” Ron Plain, Professor Emeritus at the University of Missouri, said. “Most of the benefits went to the European Union. From 2005 through 2014, the U.S. was the largest pork exporting nation. Now, we are second to the European Union.”
Rabobank’s 2016 fourth quarter report finds that abundant supply and looming slaughter capacity constraints in the U.S. are pressuring global pork prices, a situation exacerbated by slowing Chinese imports.
“This will result in a further decline of the Rabobank Five-Nation Hog Price Index in Q4, which turned unexpectedly in Q3, says Albert Vernooij, Animal Protein analyst at Rabobank. “Prospects for 2017 are weak, with global trade expected to stabilize and all main producers in expansion mode, making supply discipline key to the outlook.”
Rabobank says Chinese import growth will be slower than in previous months. Competition will intensify as more countries and companies obtain export permits. For Europe, 2017 prospects are soft, with rising competition in Asia and the declining British pound pressuring returns from this important local market, according to Rabobank. Herd expansion needs to stop or decline to support prices. However, Europe still has a competitive advantage over the U.S. because its exchange rate is so much better. This year, the EU had 70% market share of imports to China.
Brazil has seen a slight rebound in prices. Combined with the expected decline in feed costs, Rabobank believes this will support production and exports in 2017.
Future Expectations of the Trump Administration
The 200-day plan is built around five main principles, explains CNN: First is renegotiating or withdrawing from the North American Free Trade Agreement (NAFTA), second is stopping the Trans-Pacific Partnership (TPP) deal, third is stopping "unfair imports," fourth is ending "unfair trade practices," and fifth is pursuing bilateral trade deals. The final focus, to "retain and return manufacturing jobs," focuses on lowering the business tax rate and eliminating regulations on businesses and restrictions on domestic energy.
As a businessman, president-elect Trump certainly values the importance of trade, but he feels America has been taken advantage of in previous trade deals. He wants to renegotiate NAFTA and make future trade agreements more beneficial to the U.S.
In regard to the TPP, “The provisions on TPP are almost certainly moot, as congressional leaders on both sides of the aisle say the deal will not come up for ratification in the lame duck congressional session,” said CNN. “Trump would then not need to take any action to kill it, because the deal would be effectively dead.”
This isn’t good news for pork producers, as the TPP would have made new and existing markets more accessible. It’s now a “wait and see” situation in terms of future trade negotiations.