April 19, 2024

Plenty of pork, but who’s going to eat it?

By Jeannine Otto

The hotel, restaurant and institution industry is the largest demand category for bacon in the United States. A sudden drop in that demand, due to COVID-19 induced closures or slowdowns of much of the U.S. restaurant industry has seen the demand for pork bellies drop, as well.

DES MOINES, Iowa — The United States has a plentiful supply of red meat, from beef to pork. The big question for the industry is — who is going to eat it and when?

“The bottom line is we’ve got a lot of red meat and poultry in this country that has to find a demand,” said John Nalivka, president of Sterling Marketing in Vale, Oregon.

Nalivka was one of three livestock economists who spoke during a Pork Checkoff-sponsored conference call following the release of the U.S. Department Agriculture Hogs and Pigs report for the first quarter of 2020.

That report, with numbers as of March 1, 2020, found that the supply side of U.S. pork production continues to turn out pigs and pork.

All hogs and pigs, at 77.629 million head, was up 4% from the same time a year ago and higher than analysts’ pre-report estimates of being up 3.4%.

The breeding herd, at 6.375 million head, was 0.4% larger than a year ago, but smaller than pre-report estimates of being up 1.4%.

The marketing herd, at 71.254 million head, was 4.3% larger than last year and exceeded pre-report estimates of being up 3.5%.

One sign that producers haven’t slowed down on producing pigs was the December-February farrowings, at 3.158 million head, that was 1.9% larger than a year ago and a significant increase from the pre-report estimates, which had that number even with year-ago numbers.

The efficiency of pork producers in caring for their animals also set a new record, as the December-February pigs saved per litter number set a new record at 11, 2.8% larger than a year ago. Analysts estimated that number would be up 2.9%.

The big question is — where is all that pork going to go?

“I think the real concern is what happens to pork product prices and, in turn, hog prices as we see the impacts of COVID-19 spill over,” said James Mintert, director of the Purdue Center for Commercial Agriculture in Lafayette, Indiana.

Exports, a long time bright spot for the U.S. pork industry, will take on new importance to maintain and increase prices for producers.

“It will take the export market to put any support into this market, once we get on the other side of coronavirus and we start to get into some normal seasonal patterns on demand and supply,” Nalivka said.

One of the starring roles in that export picture is China and the likelihood that it will continue to import U.S. pork in large quantities, but when and how much are big questions that remain unanswered.

“Obviously, some expectations of strong export growth going to China. That remains somewhat up in the air with respect to how rapidly the Chinese economy recovers and how rapidly we can see larger shipments take place to China,” Mintert said.

Mexico is another major customer for U.S. pork, especially hams, but that demand has slowed due to a strong U.S. dollar and problems in Mexico’s economic system.

“The concern I would have is so far they haven’t had the virus impact that we have had in the U.S., but what happens if they do see a more widespread impact from the virus, resulting in larger unemployment down there and weaker consumer income?” Mintert said.

Daniel Bluntzer, president of New Frontier Capital Markets in Robstown, Texas, noted that increased exports to Mexico or even maintaining current levels remains another question mark and a big risk factor.

“If problems happen in Mexico as far as them going through what we are going through, an economic shutdown, that is going to decimate the trade there as well for the time being,” Bluntzer said.

The impact that COVID-19 will have on the industry is just beginning to show, in lower futures prices and in lower demand for pork bellies, due to the sudden slowdown of the hotel, restaurant and institutional demand for bacon.

“The futures market is trying to anticipate what that increase in unemployment is going to mean in terms of the impact it will have on consumer demand domestically and, to some extent, in the export channels,” Mintert said.

Pork bellies have seen a drop in price due to the slowdown in the hospitality industry, or HRI — Hotel/Restaurant/Institution — in the United States as a result of COVID-19.

“We are already getting reports that bellies are being rendered because they are cheap enough to offset some other things. The question is how soon can lower prices be reflected? I don’t think the retail, in the short run, can make up for the loss of HRI,” Bluntzer said.

Bill Even, the CEO of the Pork Checkoff, said that the loss of the HRI demand for bacon has hurt.

“When you look at the restaurant market, we move a lot of bacon through the foodservices side. That is where our exposure is at, that is why you are seeing those changes in the cutout. There has been some pressure on the belly,” Even said.

Nalivka said he was confident that business and demand will return for the industry, but it may take a while.

“We’ve got to get on the other side of coronavirus. Food service doesn’t just come online suddenly. It takes a while before things get to moving. You’ve got to get people back in the restaurants. I feel pretty confident that will happen,” Nalivka said.