The U.S. pork sector has had a pretty good stretch of events in recent days. Most notably of course is the passage of the 4-year-old free-trade agreements with South Korea, Colombia and Panama. That alone justifies a round of bubbly and a satisfied grin.
Pork producers and their representatives worked long and hard at keeping the pressure on Congress to open these markets for the good of agriculture and United States as a whole. After all, we’re talking about the prospect of $13 billion in additional trade and 250,000 jobs. In the end, the three markets could gobble up another 6 percent of U.S. pork producers’ annual production. The United States is already the world’s No. 1 pork supplier with exports claiming more than 22 percent of this year’s supply.
The pork industry’s trade goals won’t stop there. Other markets are on the list such as Vietnam, and a group of countries in the Pacific Rim, and rightly so as exports are where the “gravy” is. Without the $56 per hog that exports contributed to producers’ paychecks last year, profitability would be nothing more than a dream and ledgers would be flowing with red ink.
Prospects of export growth fed the long-term hog contracts this week, helping push April and June 2012 futures upward. Profits of more than $20 per hog penciled out, depending on the producer’s risk-management strategy.
Softness in the corn market helped that scenario as well. Even though USDA’s Crop Production and Supply and Demand reports anticipate a slightly smaller corn harvest—12.433 billion bushels—than previously projected, the global supply is about 5 percent better off. Higher U.S. and global wheat supplies also have opened up feed prospects.
Carryover at the close of the 2010/2011 crop year came out 208 million bushels higher than anticipated, which put 2011/2012 in a slight better light. The key words being—slightly better; at 866 million bushels it’s still the lowest supply since 1996, which means during the next year there will be plenty of nervous and volatile days.
The corn harvest is a bit more than one-third complete and corn yield reports are a mixed bag. USDA held with its 148.1-bushel-per-acre average. We’ll simply have to wait and see and hope the days don’t turn wet or snowy.
With all eyes focused on corn, soybeans tend to get short shrift, but those supplies appear to be tighter than first thought and that will keep soybean meal expensive. USDA pegs this year’s soybean crop to be 8 percent short of last year’s harvest.
Last week’s entry in the U.S. House of the Goodlatte-Costa bill, which would allow a retreat of the Renewable Fuel Standard when corn stock-to-use ratio entered in to the “danger zone,” is another welcome development. Of course it’s not a done deal as the bill still has to get passed. Even then, the free market and prices will dictate who will get the corn.
On the competing meat front, pork will benefit from cuts in beef and poultry. According to this week’s USDA’s World Agricultural Supply and Demand Estimates report, domestic beef supplies for next year are on pace to be 5.9 percent lower than this year. Broiler estimates show a 0.9 percent decline, which could end up being greater, depending on feed’s profit squeeze. Pork production could be slightly higher given farrowing intentions and productivity gains, but 2012 domestic supplies should be unchanged to lower than this year if exports jump.
In recent days, I’ve heard some talk about sows going back into idled facilities. This summer saw some finishers built in the Midwest to handle the rock star productivity gains. Despite the on-going high and volatile grain markets and feed prices, pork producers have had some good opportunities and this week presented a few more.
You deserve to revel in what was a good week-- just keep an eye out for obstacles. Getting over zealous will kill the joy and the profitability.