How low can they go? Price outlook for hogs grim as trade uncertainty mounts

Livestock economist encourages farmers not to panic, however.

If trade disputes don’t get resolved soon, the hog industry could enter a period of contraction, says Purdue livestock economist Chris Hurt. (Illinois Farm Bureau file photo)

By DeLoss Jahnke

One look at hog futures at the CME Group, and the warning signs are apparent. Large supplies and trade disruptions have farmers nervous for what the fourth quarter of 2018 will bring.

“We’ve got a lot of supply coming, and then we have the tariffs on top of that; that will weaken demand,” says Purdue livestock economist Chris Hurt. “Running current numbers, we’re looking at losses in the fourth quarter that would be the worst since, dare I say it, the fourth quarter of 1998, that tragic time we had in the hog industry.”

Hurt said he’d already been forecasting returns in the red later this year, but if the U.S. loses trade opportunities with China and Mexico, it would essentially add 9 percent more pork to the domestic market.

“That’s essentially 40 percent of our export market,” Hurt said. “This is going to be a really difficult time period to get through. We’re going to have to look at our cash flow situation very carefully, we’re going to have to work with our lenders and of course we’re doing everything we can as pork producers from a cost-of-production standpoint.”

Illinois Farm Bureau Vice President Brian Duncan is an independent pork producer in northwest Illinois. He says he’s grown his business in recent years with an eye on export markets.

“If we draw out to the logical conclusion here, that 25 percent, give or take, of our hogs were going to export, and we’re slowly working at getting rid of those export markets, we’ve got 25 percent too many sows in this country,” he said. “We’re looking at a real shift in rural America.”

Related: USDA announces tariff relief plan for farmers. Read more here.

Hurt says that if trade disputes aren’t resolved “in a few months,” the industry could certainly enter a period of contraction. Taking sows out of production and into the market would put even more ground pork into the supply chain at a time of already high production. Furthermore, it would likely increase the percentage of packer-owned hogs, either outright or on a contract basis.

“Initially, what we can say as we move into these scary time periods is that we shouldn’t panic,” Hurt said. “By panicking, we often make the very worst decisions. Generally, you don’t have those worst-case scenarios.

“The reality is, China, a very important market for ag goods, has said that they’re willing to buy more goods from the United States,” he continued, referencing earlier discussion by China of buying an additional $50 billion of U.S. goods. “Of that, $10 billion could come from agriculture. We have a chance for a positive outcome.”

Hurt says farmers need to have a financial plan to get through the short run and not make any major decisions, such as expansion or contraction, while these negotiations continue.

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