Strong prices, demand, disease and policy all top of mind for attendees.

Steve Meyer

June 15, 2021

6 Min Read
hog barns farm and wind turbines in Iowa corn field

It was great to once again be with pork producers and the people who support them last week in Des Moines. For the first time in three years, World Pork Expo came to the fairgrounds, and attendance was good from both the exhibitor and visitor point of view. There weren’t as many total people there due to the lack of a hog show but there appeared to be good representation of the commercial production segment.

Several issues of economic importance were front and center in the seminars and aisleway conversations.

First, strong pork and hog prices left everyone in a good mood. Strong demand will do that, allowing both producers and packers to be profitable at the same time. That doesn’t happen often but is true in spades this year. The last piece of data regarding April per capita consumption was released last week, with real per capita expenditures (RPCE) for April coming in at a whopping 24.9% higher than last year. Now, that is more a statement about how bad RPCE was last year in the midst of the Covid-19 harvest problems, but the number was also slightly higher than the 5-year average. Year-to-date pork RPCE is now 9.4% higher than last year and will almost certainly get another big boost when May data are available in early July. That, again, is more of a statement about how bad RPCE was last year, but we will almost certainly go into June up double digits from 2020. RPCE is a direct measure of the status of consumer-level pork demand. 

Second, virtually everyone followed statements of “aren’t things great” with “how high could these feed prices go?”. The answer is: very high if major production areas don’t get rain. A slightly wetter 8-14-day weather outlook sent corn, beans and bean meal reeling on Monday, but our cost estimates are still very high. Based on historic parameters from Iowa State University’s estimated costs and returns, we show 25% of low-cost producers having costs near $80/cwt. carcass this year and next. Average producers will be in the mid- to upper-$80s. Thank goodness for high hog prices!

A few hiccups in South America and exceptionally strong demand from China have put us in this spot.  No one thinks Chinese demand is going to wane much, if any. A good U.S. crop will not return us to anywhere near normal costs, and a short crop could be disastrous. This is, as always in June, a weather market. It is just launching from a much higher level this year. 

Third, storm clouds are rising on several policy issues, and their outcome is anything but clear. 

Front and center is the reduction of chain speeds at six plants come July 1 that will reduce total capacity by 85,000 to 90,000 per week. USDA told the impacted plants last week to prepare to slow down but that warning does not mean USDA will not appeal the Minnesota judge’s decision to set aside the final rule. It was just a statement of fact that the decision will not be reversed by July 1 so the plants would have to comply. But USDA has not committed to appealing the judge’s decision. They do have until mid-August to appeal. It is important for readers to know that this decision had nothing to do with actual safety or injury data from the impacted plants. The decision was based on USDA’s failure to follow the proper procedures in promulgating the final rule. So, the spat is between the USDA and a federal judge and producers are likely to get whacked. I don’t see immediate price impacts, but I (and everyone I talked to in Des Moines) am concerned about this fall. My current weekly forecasts would put slaughter totals above the new 5.4 workday weekly capacity of 2.68 million seven time in Q4. 

Prop 12 is the other looming policy change that could impact U.S. pork producers. Californians consume about 14% of our national total. A Prop 12 compliant (24 square feet/sow, post-weaning crates 6 hours out of 24 hours and only four times per month) herd would require somewhere near 700,000 sows. An appellate court decision on the NPPC/NAMI lawsuit alleging the law violates the latent commerce clause of the U.S. constitution is expected this summer, and California finally published a proposed rule during the week of Memorial Day. The law said that a final rule was to be set in September of 2019. Yes, 2019!  A little late, don’t you think? The challenge is that, without knowing whether the law will stand or even what the requirements will be, the U.S. production sector has nowhere near the number of compliant sows it needs. And any part of that 14% of domestic consumption that should go to California that can’t go to California will have to be sold in other domestic or export markets, pushing pork values lower. 

Finally, the constant uncertainty of domestic supplies looms. While none of the apocalyptic supply predictions of the winter and spring have come to fruition, there are still concerns primarily focused on herd health. PRRS and PEDV have reared their ugly heads again, and the PRRS breaks appear serious and come at a very unusual time of year. The University of Minnesota’s Dr. Bob Morrison Swine Health Monitoring Report for the week of May 28 shows 12 sow farms in its sample broke with PRRS that week, up sharply from a more normal two and zero breaks the weeks of April 14 and 21. This year’s cumulative case number is still barely above the lowest on record, but the severity of this 1-4-4 strain has been significantly worse. I have not been able to detect an oft-predicted “hole” in hog supplies, but that seldom is the case.  A supply “dip” may be discernible but the impacts of PRRS are hardly ever well enough defined to create a “hole”.  And I really haven’t seen a dip from what either USDA’s March data or my predictions using those data told me to expect. But April and May PRRS cases are indeed unusual and may cause some reductions in October and November. Any losses should show up in the June and September “Hogs and Pigs” reports.

USDA’s quarterly “Hogs and Pigs” report will be released on Thursday, June 24 at 2:00 p.m. CST. Let’s hope that a high percentage of surveyed producers responded with highly accurate data and that USDA’s models give us an accurate picture of hog inventories and production plans. They did pretty well in March, and another good effort will help all of us plan for the future. While by not means certain, these numbers may be among the most dependable we have for this summer.

About the Author(s)

Steve Meyer Livestock Division

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