Agility is paramount for swine industry
It has been about seven months since the U.S. started feeling the impacts of COVID-19. The country has yet to fully understand the impacts of shutting down this economy and what the post-COVID economy will look like. The meat industry continues to feel the pain of employee issues at plants.
This has kept the industry from fully capitalizing on value that reaches the live animal sector. The food service industry is beginning to ramp up from the shutdown, which should begin to help. Recovery has been much slower than we had hoped.
Pork producers have shown how agile they can be. Live hog production in the U.S. totaled 74,887,800 head year-to-date through July, an increase of 1,512,700 head (2.1% over 2019). Producers have reduced inventory and breeding targets. This inventory management strategy has reduced the number slaughtered year-to-date, but will likely have the biggest impact through the rest of the year. The industry has been in a retraction mode for most of 2020 and will likely continue given the uncertainty of prices as of today. My expectation is that we will finish 2020 with 2.0% higher slaughter numbers than 2019 and likely reduce supplies for 2021 if the sow slaughter continues.
Pork exports from the U.S. have been very strong year-to-date. In spite of tariffs on U.S. pork to China, exports to China and Hong Kong are up by 366,542 metric tons compared to the same time period in 2019 (January-July). Exports to that region slowed considerably in July, but news of a positive African Swine Fever test in Germany will impact China and South Korean imports immediately.
The swine industry on average, has suffered substantial impacts from COVID-19 and recovery will take some time. Packers are unable to convert as much product to case ready due to lack of workers, in addition to costs associated with keeping employees safe and working.
All this with somewhat lower daily volumes due to short staff and paying to run Saturdays through much of the year. Producers have taken a much larger hit with pigs that could not get to market, with higher costs to slow their gain and a hold until markets could catch up, and much lower revenue as negotiated markets took the brunt of the impact.
Being agile in the future is going to require us to understand what our packer can handle as far as slaughter numbers. We simply cannot afford as an industry to repeat the depopulation and growth reduction of finishing pigs in the future again. Because we had moved so many pigs to slaughter during our normal seasonal low (Jun-Jul-Aug), our markets never saw a summer rally. History indicates that is the period we make a good share of annual profits. This will likely make the recovery slower for the industry.
Bang is the vice president of swine lending at Compeer Financial