Dr. Steve Meyer: Market Trends for Pork Production
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Dr. Steve Meyer with Paragon Economics, Inc. said five questions will drive the markets for pork production this year: “Will it rain? Where will it rain? When will it rain? How much will it rain? Will it be hot, hot, hot again this year?”
According to Meyer, weather is the biggest influencer on markets as we look to the summer – and it’s always a gamble. For example, Meyer pointed out that last year at this time, we were worried about northwest Iowa and southwest Minnesota being too dry. Little did we know that the 2012 drought would make these areas the least of our worries.
Meyer said we have never before seen two droughts like 2012’s in a row, but we’ll have to wait and see what 2013 holds in store. The southern Corn Belt is in good shape in terms of drought conditions and things are improving in the Southeast and Plains states. The USDA forecasts 96.5 million acres of corn planted this year. With a perfect weather yield of 163 bushels per acre, that would lead to corn prices at about $4.80. As long as the weather cooperates, Meyer said “that’s very possible to do this year.” He said soybeans are likely to price out at $10.50 per bushel.
Meyer said he believes changing fuel use will force U.S. policymakers to review ethanol mandates. That’s because more fuel-efficient vehicles are simply using less fuel than they did in past years. Blenders can’t meet the ethanol mandates when they have less total fuel to blend.
Shifting focus to the global economy, Meyer said Japan is the latest economic worry as the country has slipped into a recession and the exchange rate of the yen has decreased. Europe continues to be an economic “wreck” while the rest of the world seems to be in a recovery.
In the U.S., the housing market is slowing improving with low interest rates and job growth. Meyer said the unemployment rate is falling, but will likely stay above 7 percent. He said per capita disposable income was down in January by 0.1 percent, which does affect purchasing decisions.
According to Meyer, “everything is working against meat demand right now.” The Social Security tax essentially meant that every American took a 2-percent cut in pay starting January 1. That equates to $100 million per week less in the pockets of U.S. consumers. In addition, bad weather across the country has lessened public spending. As the eastern states were hit by several severe storms, many people weren’t able to get to work and, thus, collect their full paychecks.
Meyer said pork exports are approaching 25 percent of total output, which he cited as “a source of pride and concern” as it brings risk dependent on the actions of other countries. He said it’s not likely that we will hit record exports in 2013.
Meyer concluded by saying that the 2013 forecasts for pork have fallen again, but he’s optimistic that producers should reach $90 to $92 per hundredweight this summer. The 2013 slaughter will be slightly higher than 2012; weights are still lower right now, but will probably increase in the summer months. Finally, Meyer pointed out that sow prices have “exploded” recently. He challenged producers to take advantage of the opportunity to market some of their sows and replace them with better genetics if they’re in a position to do so.