July 25, 2021

Fast five: Hogs and Pigs report brings questions

DES MOINES, Iowa — The second quarter U.S. Department of Agriculture Hogs and Pigs Report brought some surprises, in lower productivity numbers and higher-than-expected numbers of market-ready hogs — and questions.

Three livestock analysts participating in the Pork Checkoff-sponsored media call took questions from their online audience.

Here are five of those questions, along with answers from the analysts who responded. The analysts responding were Dr. Tyler Cozzens of the Livestock Marketing Information Center, Dr. Lee Schulz of Iowa State University, and Kevin Grier of Kevin Grier Market Analysis and Consulting.

Related to issues of labor with packers and processors, what are your thoughts? What is that going to do to our market short term and long term?

Schulz: It’s not a short-term issue. This has been an issue for a long time. Rarely do I use the word shortage because usually prices help ration that demand. But if you apply that to labor, wages have increased. It doesn’t matter. They are not able to create more workers. That is, by and large, across production ag and hog production, be it on farm and processing. I don’t see the short-term answer there. The short-term answer is to raise wages and we’ve seen that. Wages are really strong, but we are just not attracting those workers. I see that to continue to be a challenge.

Grier: I think, in the last 15 years, I have a hard time thinking about a discussion about the industry that has not devolved around labor and challenges of packing plant labor, so it is long term.

What do you estimate the breakeven cost of production?

Grier: If you pin me down, I think breakeven costs for 2021 are about $80 to $85 per hundredweight. We haven’t seen these costs in quite some time, so that is tempering the profitability. Certainly we are seeing really strong hog prices, but you have to pair those with those much higher costs of production. It’s not just feed, either. Feed is obviously a big part of that and getting a lot of the attention, but you go across the board of all the inputs and those are all up from what they were in 2020 and, really, what they have been over the last several years. Those inflationary costs, those are here to stay.

Given the volatility of the corn and soybean markets in recent times, what impacts might that have on expected revisions to this report?

Grier: I don’t know if I would look at it from a revisionary standpoint, but I think I would look at it from how does that change farrowing intentions into actual sows farrowing? We get guesses by producers one and two quarters out. Those are best guesses, but how do the economic conditions between now and when we actually see those sows farrow change? We’ve seen a lot of volatility in the market. We’re also seeing some rain here in Iowa now. How does that impact corn prices and how does that impact producers’ decisions to farrow more sows or hold with what they intended to?

Schulz: I think that’s a good point in terms of where the industry is at. It’s at where it is because of what happened in 2020. This feed situation is probably going to moderate and I think there is a trend of growth and, again, the reason why we declined was a once in a lifetime sort of experience.

Regarding reports of China’s herd growing, what impact do you see that having on exports and prices here in the United States?

Cozzens: China is definitely a market that you have to watch, especially with the U.S. starting to export significantly more. I think from more of a traditional standpoint, we have a market south of here, in Mexico, that has always been a key market for us. A lot of the declines that we’ve seen in shipments going to China, we’ve actually seen those get absorbed and now going to Mexico. From a trade standpoint, we had a record year last year. I think if we can even come close to maintaining that, that is a huge win for the industry and especially if we can maintain those key markets we’ve had in Mexico, Japan, South Korea, Canada, specifically. If we can maintain our market share there and the pace of exports to those markets, it’s going to be critical for the industry moving forward.

Grier: I would add, in terms of China, right now, prices are horrible. Prices are at levels that people are very concerned about, about what they’ve got on the water and on the docks there. That, however, is because of a wave of African swine fever liquidation that’s occurring, so probably packers have got a period of three or four, maybe a little more, months to work through some very difficult times. But after that I see it being much more bullish again.

Did you include line speed impacts in your slaughter forecasts? What is your commentary on line speeds and potential impacts?

Grier: I did not. I am kind of keeping my fingers crossed on that one, so the answer is no. I know it’s a serious question that you folks are working on and, obviously, everybody wishes you the best on that one.

Schulz: Be it impacts on processing or greater numbers, all have a detrimental impact on hog prices. The industry is always fine-tuning what that processing capacity relative to inventory numbers are, so I think this is just one added factor that could certainly impact those prices, something certainly we are all watching and how that has an impact.

Cozzens: I haven’t started to factor in those changes in the slaughter side of things, largely because I am waiting to see what actually is going to play out with that. It’s a topic to be watching and considering and to watch moving forward because it might have some implications moving forward.

Jeannine Otto

Field Editor