Whether in reference to the effectiveness of a vaccine or in the spirit of the holiday season, the word "faith" is getting tossed about in an aggressive fashion. Faith, in this realm, seems a bit abstract and subject to various definitions. In animal ag, we need something to push against when forming our opinions, fortunately we have numbers.
Dr. Steve Meyer did a good job in last week's publication of articulating the difficulty in predicting demand – there are so many variables at play that you only know the "why" after the "what" has occurred and we attempt to predict the future using the most recent trends. Some can be fickle – think of the Atkins Diet in the early 2000s that caused an uptick in demand or the ill-named Swine Flu in 2009 that did the opposite. For this reason, demand prognostication can be akin to trying to nail Jello to the wall and have it stay there long enough to develop a meaningful prediction.
Supply, on the other hand, is a bit easier to define and interpret. In our industry, we see this during the crop growing season as we fine tune acres and yield in narrow band or the four times per year where we shine a light on the animal number count in a Hogs and Pigs report. The latter will be published on Thursday; here are the average guesses in front of the report:
If these numbers were to be realized, I think the trade would respond in a friendly fashion. The USDA has been playing catch-up in the past few reports and making revisions (lower) on inventory numbers based on actual marketings. The COVID scenario threw a wrench in the gears of predictability and we are trying to stop the oscillation. Throw in the possibility of increased line speeds and you have the potential for the summer months to trade higher as shackle space would exceed market-ready animals. You will have the opportunity to stew on the report for a bit, it will be published after the close on Thursday and – because Christmas falls on a Saturday this year and we will have no CME trade on Friday – the next trading session will be Monday morning.
The unknown fly in the ointment (of course African swine fever is always looming) is the handling of Proposition 12 in California. We had previously been under the impression that any animal born before Jan. 1 would be exempted from those provisions, specifically the 24 square feet per sow component. Recently, the California Attorney General in their brief to the Supreme Court (responding to the National Pork Producers Council appeal to the law) wrote that a law already on the books that affords an animal to turn around without touching any object was not causing any disruption so the 24-feet definition should follow the same path. The "problem" is, of course, that the law was not causing a disruption because the State of California was not enforcing the provision. We have recently read articles from some prominent packers that they do not wish to put themselves into the realm of ambiguity after the first of the year and are electing to not vend product into California. I suppose if California can institute a policy of defining the provisions necessary to vend in that state it reciprocates that the vendors have an opportunity to respond accordingly.
It is probably too easy to speculate that interests on both sides of this topic will cry "foul" no matter what happens. We saw a piece of that recently as the California Hispanic Chamber of Commerce and others have sued the state contending that the implementation of Prop 12 violates their stated timeframe of rules being established by September of 2019. The ambiguity has metaphorically compared to not posting speed limits signs but fining folk for going too fast.
Here is the bottom line: Those of us that rely on numbers for our understanding of the world have, I believe, a head-start on the rest of society as it relates to making sense of things. We still have hope of something better for the next generation, we still have faith in that which we do not fully understand, our spirit of belief in something bigger than us compels us to keep trying. Merry Christmas to all.
Comments in this article are market commentary and are not to be construed as market advice. Trading is risky and not suitable for all individuals. Joseph Kerns