2018 – Goodbye
We are at the end of 2018. We say good riddance. 2018 was a year in which hog producers in much of the world didn’t make much money. In USA-Canada market hogs sold for too many weeks under the cost of production. China had low prices at the first of the year which were below cost of production and then the African Swine Fever break. European markets were on either side of breakeven. Brazil was in much the same predicament.
Countries that were profitable include Mexico, South Korea, Russia, Philippines and Japan. Being a hog producer in these countries was more than okay.
Can’t forget speaking to a Russian producer. He asked; what were profit levels in North America. At the time losses were in $20 per head range. Will never forget his look and next question; “Why would anyone produce pigs?” have to say there was no real smart reply.
To a certain extent we are all marooned in the industry. From our observations there are usually very few exit strategies that recapture investments. We have to the most part survivors of what is a system of relentless darwian capitalism. Some countries have government assistance for pig farmers to a certain extent, but that just delays the inevitable & continued consolidation of the global industry.
The hog industry in USA-Canada reminds us of General Motors in 2008. Their car dealers were all making money, life was good for them. Meanwhile General Motors was going broke. The hog industry the last few years; Packers have healthy gross margins, while producers have been getting a smaller percentage of the pork end dollar.
We expect the pendulum to swing in 2019 as increased Packer capacity with no expansion should increase competitiveness for market hogs.
Lean Hog Prices for 2019 on the Chicago Futures indicate the average profit in the $20 per head range.
We expect feed prices in USA-Canada to stay about where they are. South Americas crops appear to be much better than a year ago.
Our contacts in China indicate African Swine Fever (ASF) implications are decreasing production. Country wide swine feed tonnage is down. Pigs are being eliminated due to ASF itself plus implications of extremely low markets in some regions. We expect ASF in China will lead to more imports and this will boost North American, European, and Brazil markets by mid-2019.
In 2019 there will be further push and pulls re: Gene Editing (GMO) in swine. The technology will keep coming. The real debate will be regulatory, consumer acceptance and ethical debates. We remember the McDonald (14,000 restaurants) executive at NPIC conference telling 800 plus swine industry people “Don’t expect us to explain Gene-Editing its GMO.” When the world’s largest restaurant chain throws out the warning, we better take heed. We would not be surprised if a combination of packer-retailer-food service i.e. Whole Foods might start labelling Pork Non-GMO, just like some orange juice companies do. Simple label and today no doubt the truth.
In 2019 we expect a further push globally to produce pork with more taste-flavour. This is done by having higher ph., more marbling and redder pork.
Consumers taste experience is key to demand. More and more smart marketers are recognising this reality. We expect to see a further push to high marbling, redder meat which will come from purebred Durocs.
We are optimistic for 2019. Indicators are mostly positive. Hopefully we are not the boy who sees the manure pile and says; “I am sure there’s a pony in there!” All the best in 2019. In Asia it’s “The Year of the Pig”
This post was written by Genesus