ANALYSIS - Steve Meyer, vice president of Express Markets Inc. Analytics, provided an economic outlook for the US pork industry at the 2016 World Pork Expo in Des Moines, Iowa, USA.
Domestic demand has been soft from a measure of real per capita expenditures. Although Meyer said comparison data from year-ago is unusual because the industry was going through the port slow down situation that backed up product on US ports which ultimately showed up as consumption until it went out.
April was up 3 per cent from a year ago for real per capita expenditures, which is the measure of demand.
"For total need, we’re still down for the year. Normally, the report bottoms out on real per capital expenditures in the summer, gets extremely strong in the fall," he said. "We’ll probably run about last year’s numbers all the way through the summer and April. History tells us we’ll strengthen in the fall."
There’s still a good probability that the US will have stronger demand this year which is remarkable due to the strong numbers from the last couple of years that we are comparing to.
"That’s a long term uptrend for core demand that’s been going on since 2010 - part of that is the recovery from the great recession," Meyer noted. "The economic recovery - a big part of it has been the change in some preferences and consumer viewpoints of animal fats and the role of protein in diets. We’ve just seen a strengthening across the board of meat demand over the last few years, so that’s a positive for business."
For US exports, the April data is also very unusual because last year, April was the cleanup month from the port slow down, he said. So April exports were down 11 per cent from a year ago, but they were compared to a very unusual number last year, so Meyer said he's not concerned about the difference. Year-to-date, US exports are up 1/4 to 1 per cent, which he saw as soft overall.
"We think that exports are going to be up 4 to 5 per cent for the year still, and the big news in the April exports, of course, was China," he said. "China and Hong Kong - up 95 per cent from a very low number last year and back on their long term uptrend, which is good."
The question now is, “Will it stay on the uptrend or are we going to have one of these windfalls like we had in 2008 or 2011 of exports in China?”
"The future’s market seems to be betting on the second. It’s been a big run the last week on the news of China. I think it’s a great opportunity for producers to be pricing hogs for the foreseeable future here," he said. "We do not have our cash forecast anywhere near as high as those futures prices are at the present time. We don’t think supply and demand really justifies that kind of price unless China is indeed in the market in a very big way as we go through May, June and into July. The possibility exists. We haven’t seen the data to support it at this point."
Cost of production is Meyer's biggest concern now. With two strong crop years behind the US, producers have had a very good cost of production situation.
"Right now, we’ve seen corn go up $0.40 to $0.50 per bushel. Beans and bean meal is up right at $100 of 10 in the last six weeks," he said.
Accounting for the price increases are the inflow of investment money from commodity firms back into commodities and the weather scare, with some forecasts of dry weather this summer.
"The transition from El Nino to La Nina and when that happens, is really critical for weather this summer, he said. "We’re going to have to carry out close to 1.8 billion bushels this fall, so it’s going to take a really short crop to really get that significantly tighter, but that could happen at this point."
The US has plenty of ground moisture right now, he said. The ground condition index in the US is very low for all the major grain producing areas.
"[This weekend] it's going to be 90 to 95 degrees with lots of moisture. That couldn’t be much better for developing corn and soybeans," he said. "The crops need the heat days, and we have plenty of moisture now. Whether we have plenty of moisture when we get to that second week of July and we start pollinating more, that’s another question, and we’ll have to see when that happens."