My mom had an arsenal of old sayings, but the one that I probably keep closest at hand is “You’ve got to make hay while the sun shines.” Growing up on a farm in southern Minnesota, we took that saying literally since, along with raising pigs, we milked dairy cows and had plenty of hay to put up.
But whether it involves baling hay, getting seed in the ground, breeding a sow or sending hogs to market, most tasks have a finite window. Indeed, you have to take advantage of nice days — or opportunities — when you get them, because you never know when storm clouds might appear on the horizon.
After 2.5 years of some of the roughest economic storms that pork production has seen, you are now basking in some well-deserved sunshine. Enjoy it, soak it in; you deserve it. But as you watch your ledgers finally turn from red to black, be sure to call on your other smart-farming senses and maintain a healthy dose of caution.
I’ve had more than one person suggest “now that producers are making money again” purchasing patterns are going to change and their money will flow freely. Certainly there is now room to evaluate equipment needs or re-assess staffing and product cuts made in recent years, but with more than $6 billion in equity lost, the industry’s foundation needs significant rebuilding to ensure it doesn’t crumble further.
Depending on the producer’s marketing program, profits have tallied between $10 to more than $30 per hog for the past few months. That’s an excellent start, but there needs to be many more months like that down the road.
I know that lenders remain nervous. The concern is that farmers who’ve been on guard for so long will relax too quickly. “Just because prices are improving doesn’t mean it’s time to abandon risk-management plans,” emphasizes Derrell Peel, Oklahoma State University livestock marketing specialist. “Plenty of factors could make this a volatile year for producers, processors and retailers.”
Pork producers, beef and dairy producers — even the chicken folks — finally reeled in production enough that protein supplies will be tighter than in the last few years. But the higher product costs have barely started to reach the grocery store. That is expected to change. U.S. consumers have become more cautious shoppers, and for more than a year, low retail protein prices have offered some of the best values around. That’s about to end. The big unknown is how consumers will respond to those higher prices. Meanwhile, protein foodstuffs will not present the only price increases that U.S. consumers will face.
The U.S. economy appears to be improving, although the global economy remains fragile as evidenced by last month’s turmoil in Greece and the European Union’s reluctant rescue plan. That will be a lingering problem, as one British reporter pointed out, because “there is no Euro government, no treasury, no common political system or directive.” His point is that’s why it’s different from the United States’ financial struggles and why challenges there will linger. Given that we all live and work in a global economy, problems in one area trickle over to others.
U.S. pork, beef and chicken sectors all increasingly rely on exports and that marketplace is fickle. As supplies tighten and prices rise, sales become vulnerable. Add in a stronger U.S. dollar, and export sales could soften.
Premature production expansion is what has lenders and economists holding their breath. Logic would suggest that after extended losses, any growth in the protein sector would come slow, yet last month Pilgrim’s Pride officials announced plans to increase production 10 percent. Sanderson Farms is another major player that’s planning a new chicken complex in North Carolina. The market didn’t like what it heard and took it out on other related companies, as well.
All this comes at a time when Russia has turned its back on U.S. chicken. But chicken wants to recapture its go-to meat position in both retail and foodservice. In the end, there could unfold a literal “game of chicken” as companies, farmers and even protein sectors jockey for the lead position in the profit recovery. Of course, that could end up damaging the overall opportunity.
No country or food sector operates in a vacuum, and developments in one area impact others. There is still much uncertainty on the input side, and just as your customers face higher prices, bargains will be hard for you to find as well.
This year’s corn crop got off to an incredibly early start, but there’s a long developmental stretch yet to unfold. Competition for corn, whether it’s from exports or ethanol, is as healthy as ever. As for soybeans, that sector has enough customers to support meal prices.
No question, you have earned the right to revel in these sunny, more profitable days. Just don’t get over-exuberant with growth plans or get lax with risk-management strategies to address market volatility. Rather, be diligent in reviewing and modifying them as market conditions change. Use this time to recoup your losses — or as mom would say, make hay while the sun shines.