Never in my life would I have thought I would go into a grocery store and see empty shelves. As we all have seen the panic-buying set in, I have seen firsthand the empty coolers where pork, beef and poultry were always in abundance. I couldn't believe what I was seeing as the checkout line, with carts full of groceries, was halfway across the store.
I embarked on this trip to try and find hand sanitizer, disinfectants and toiletries, but to no avail. My problem stems from being one of the less panicked who didn't stock up on necessities, so now I am suffering the consequences. Please don't worry about me though as I will be just fine. We do, however, need to worry about the elderly and those with underlying health conditions. We all have a social responsibility to help defeat COVID-19 as fast as possible.
Everyone deals with adversity differently. It's been tough watching the stock market fall 28.5% in the past few weeks, but it is only a loss if you withdraw the funds and do not reinvest at the right time.
The same can be said for your own operations. What opportunity exists today? With all markets falling, is this an opportunity to put some options on for corn and meal? Should you lock up LP or fuel for your cropping operation? Don't lose sight of the opportunities that can help improve your bottom line once we get back to stabilizing markets.
Empty shelves in grocery stores throughout the country have created demand for all protein. Today the markets are finally starting to reflect this as they are limit up. I fully expect this demand to continue as restaurants are closed and people are buying everything they can stock up on. At the same time, it appears export demand is picking up dramatically as well.
After hearing Brett Stuart speak about profitability in China at the Pork Forum in Kansas City, I had a couple of key takeaways. He had mentioned that the average producer was making over $350 per hog. He also said that if the United States exports 11% of our product to China in 2020 and they continue to purchase product from other countries at their current levels, they will still be short of pork by 24 million metric tons! With that said, you still need a marketing plan in place and to be ready to execute this plan. Remember, it was only a year ago we had $100 July hogs and most producers let that opportunity pass.
Interest rate opportunity
Just as all other markets have fallen, interest rates have been pummeled as well. This past Sunday, the Fed reduced the Fed Funds rate to 0%. This is another opportunity to lock up your long-term rates for your business. I am guessing some of these rates will be the lowest I will have booked in my career at Compeer.
One thing to remember though is even as 10-year treasuries hit all-time lows, the cost of funds to banks has decoupled from the markets. Rates are still low and provide you with a great opportunity, but they have not moved equally down. That's because we still need investors willing to take a position on the other side of the market to procure funds. With 10-year treasuries at 0.70, investors taking the opposite position are looking for some protection and are discounting the drop in rates.
It would be similar to basis when you are buying corn. As there is a shortage of corn in a region, basis levels will increase. Right now liquidity in the financial markets is tight and margin requirements for investors has increased. With that said, I would encourage you to talk to your lender about opportunities to reprice your loans.
Malakowsky is a vice president Swine Lending specialist, with more than 22 years of experience at Compeer. For more insights from Malakowsky and the Compeer Swine Team, visit Compeer's website.