Spring pork prices have been underwhelming, and they likely won’t improve soon, according to a recent report.
The price drop is not due to having too much supply, but because of other factors such as the weakened buying power of U.S. consumers, the possibly of furloughed meat inspectors because of the sequestration, and — most paramount of all — recent trade troubles, according to a recent study from Chris Hurt, a Purdue University Extension Economist.
Hurt issued his report March 4, and it detailed the likelihood that pork prices would remain below the breakeven point.
“We’ve had three poor growing years in a row in the U.S., and last year was terrible for Indiana,” Hurt said. “This leads to high feed prices, and roughly 60 percent of raising hogs is feed prices.
“There had been a lot of hope in January 2013 that we would see the industry return to profitability this spring, but it’s been weaker than anticipated,” he said.
Megan Ritter, Indiana Farm Bureau director of public policy, said it could be several quarters before margins in the market lead to profitability.
“Hog prices have dropped sharply in the past month, falling from about $67 per live hundredweight in early February to $58 recently,” the report stated. “Futures prices have followed suit, with April lean hog futures dropping about $7.50 since the beginning of February.”
Hurt’s report noted supply isn’t the issue. Supply is actually down slightly from the same period last year, but “prices have been $3.80 per hundredweight lower than during the same period in 2012.”
Ritter said, “We saw a decline of sow inventory of about 4 percent at the end of 2012.”
Mark York’s hog farm is located in Roann, in Wabash County, and he said they produce 25,000 pigs annually, which feeds 100,000 people.
He has a “wean to finish” operation, where “pigs come in at 12 pounds, and they leave at 290.”
“There’s a five-week nursing phase, and the entire process takes five-and-half months,” he said.
York, 48, has had his farm — which he has run with his wife, Christine — for 14 years, but he said, “The industry has hemorrhaged money the past two years.”
“There have been small glimpses of profitability, but we’re producing a pork product below the cost of the product,” he said. “But, we’re a resilient bunch of producers.”
The first factor Hurt cited for down prices is the weakened buying power of American consumers, who have been squeezed by both higher gas prices and payroll taxes.
In addition, if meat inspectors would be furloughed because of the sequestration, plants would have to shut down because they cannot operate without inspectors.
That notion might have spooked some, even though Agriculture Secretary Tom Vilsack said March 5 that it would be “several months” before meat inspectors would be furloughed.
Hurt said that aspect was “scare tactics and fear mongering,” and York added it was definitely overblown.
Ritter agreed that the issue was overdramatized, but she said the misinformation still created uncertainly in the market.
“The largest demand concerns are a result of recent trade issues” because “pork exports have become a very important part of hog prices,” Hurt wrote.
The volume of pork exports was 23 percent of total U.S. production in 2012, according to Hurt.
“Exports are extremely critical,” Ritter said. “The trade issues are significantly impacting the price pork producers are getting for their product.”
In early February, Russia — the sixth largest buyer of U.S. pork in 2012 — banned imports of U.S. pork. Russia was concerned with America’s use of ractopamine, which is a growth promoter drug.
Ractopamine is fed to livestock on U.S. farms to increase weight gain and muscle leanness, but the European Union, China, Taiwan and more than 100 other countries have banned the use of the drug in livestock farming because of their concerns about ractopamine’s effects on human health.
Russia’s pork buying represented only 1.2 percent of U.S. production, but in February China — which represented 3.4 percent — announced they’d more closely scrutinize U.S. pork imports for ractopamine.
Hurt suggested the opposition of certain countries, like Russia, might have been more politically motivated than purely health-conscious.
“I have no worry about eating that meat,” he said.
Ritter said the actions were protectionism, not food-safety.
York said he uses ractopamine with his hogs, but he said he feels it has no adverse effect on the pigs.
“We have two other employees, other than my wife and I, and we care for those pigs like we care for our children,” he said.
He also has no concerns about eating the meat.
“I feed it to my kids, and I eat it, too,” he said.
Playing by different sets of rules in America than other nations is not uncommon in the food industry, however. Many food companies market products in the U.S. that contain ingredients not permitted in Europe or reformulate foods to meet other nation’s safety regulations.
For example, Kraft currently uses yellow dye 5 and yellow dye 6 in their American Macaroni and Cheese, but those additives have been removed from the European Macaroni and Cheese because of food-safety regulations.
The additives are both legal and approved by the Food and Drug Administration, but research by the Center for Science in the Public Interest claims the two food dyes have been associated with hyperactivity in children, allergies and migraines. Because the dyes are petroleum-based, they could even be related to cancer, their reporting alleges.
Hurt also expressed concern about the Japanese pork market. He noted that a decline in the yen — which has dropped 12 percent in 2013 and by 16 percent since last October — makes U.S. pork prices higher in Japan by a similar percentage.
In the report, Hurt expressed pessimism that the industry will return to profitability this spring, and he argued a “breakeven” condition may not be met until late summer, “when feed prices can decline if more normal corn and soybean crops develop.”
“With the more cautious tone, hog prices are expected to only average about $66 in the second quarter with costs of production near $70 per live hundredweight (and) third quarter hog prices are expected to remain near $66,” Hurt’s report detailed. “Lower corn and soybean meal prices in the late-summer would bring third quarter costs to around $66 and enable the industry to breakeven by late-July or August (and) in the late-fall and winter, hog prices are expected to be near $60 and costs of production are expected to be near this level as well.”
Hurt said having exports at 23 percent is a bit of a double-edged sword. When market conditions are favorable, the outlook is optimistic. But, due to that high percentage, prices are vulnerable to trade troubles — and trade issues are typically out of the industry’s control.
Hurt concluded that, “pork producer’s ‘multi-year’ plans should probably stay on-hold for another four or five months,” because such a considerable amount of the pork price outlook is contingent upon weather conditions during the spring and summer.
York said high grain prices have been the major burden on his operation lately, and recent droughts have only exacerbated the problem.
“Our hopes are for a bumper crop this year,” he said. “That helps everybody.”
Ritter said the crop outlook for 2013 will be “critically important for pork producers. We’ve yet to restore the soil moisture we lost from last summer’s drought.”
But if the spring and summer are wet enough, conditions could start looking up, Hurt said.
“If the rains come and feed prices go down, we’ll be in good shape,” he said.