Pork Potential

OMAHA (DTN) -- Though President-elect Donald Trump announced the United States will back out of the Trans-Pacific Partnership, the move may have little effect on the U.S. pork industry that is awash in supplies.

While the industry could have benefited from the TPP, demand for U.S. pork in Japan, China and Mexico will continue to grow without the trade deal, one industry expert said during a conference call with reporters Tuesday.

Brett Stuart, chief executive officer of Denver-based Global AgriTrends, said without the TPP, the pork industry will continue to flourish.

"What it really does is it keeps the status quo," he said. "We do very well in Japan."

For example, U.S. pork sells at retail in Japan for about $6 per pound compared to about $11 per pound of pork produced and sold domestically in that country, Stuart said.

"We are very lucrative in that market," he said. "We would have loved TPP to take away some of their producers out of the domestic industry. We will continue to be competitive in that market."

Although many agriculture industry groups have been concerned about perceived anti-trade rhetoric coming from the Trump campaign, Stuart said exactly how that translates into trade policy remains to be seen.

If anything, he said, Trump's platform of keeping jobs in America could be a benefit to U.S. agriculture.

"Everything's speculation at this point," Stuart said. "If you listen to the rhetoric, he has been very aggressive to build jobs at home. So trade is a two-way street. If you look at U.S. agriculture, this is his message -- the U.S. has a robust, competitive manufacturing based and a huge surplus in agriculture production.

"I guess time will tell, but his focus on trade and acting on bringing jobs back -- it's hard to imagine a deal put in place that negatively affects agriculture. That's just my speculation."

Len Steiner, president of the Manchester, New Hampshire-based Steiner Consulting Group, said before the presidential election there was a bit of uncertainty in the meat market in general. Now that Trump has been elected, he said he expects to see consumer confidence rise in the next few months.

In addition, because there is a surplus of pork in the U.S. economy, increasing consumer confidence could translate to rising sales for the industry.

In 2015-2016, U.S. pork will have the highest percentage of production exported, compared to other meats, Steiner said. It is expected about 20% of U.S. pork will be exported.

Patrick Fleming, director of market intelligence and innovation for the National Pork Board, said the upcoming holidays traditionally bode well for pork.

"The fourth quarter is the strongest for pork sales," he said, "and we expect a strong quarter again this year."

About 28% of all pork sales in the U.S. typically take place in the fourth quarter, Fleming said.

Stuart said although export demand for pork continues to grow, the rising value of the dollar creates some headwinds on expanding exports in 2017.

CURRENT MARKET

DTN Livestock Analyst John Harrington said pork surpluses are hurting producers.

"Pork producers are definitely not having a good time this quarter," he said. "Record slaughter numbers and barely adequate slaughter capacity has really hammered the cash market."

Market hogs currently trade around $30 on a live basis. The breakeven for producers is in the mid $40s, Harrington said, so most producers are losing between $30 and $35 per head.

"Prior to this quarter, producers were enjoying a profitable 2016," he said. "Indeed, that partially explains why modest signs of herd expansion have surfaced."

DTN Analyst Rick Kment said hog prices have bounced back during the past month, but have posted long-term lows through October not seen since 2002.

"This has focused on the strong supply of market-ready hogs despite the ability to move pork at aggressive levels through the fall and winter months," he said.

"The short-term trend of the lean hog market has stabilized, while the long-term trend of the market remains lower based on a pullback of lean hog price levels near $86 per hundredweight (cwt) through midsummer to price levels below $50 per cwt currently."

Kment said the potential for lean hog prices to move higher is "strong" through the next several months as supplies are expected to tighten during late December and early January.

"This is creating a potential for renewed buyer support in lean hog prices during the spring and summer of 2017," he said, "but likely not to the levels seen over the last year."

The dollar began to strengthen starting in July 2014. Stuart said pork exports to Mexico in particular have become more difficult. That's because the Mexican peso has dropped by about 33% since July 2014, making U.S. pork more expensive for Mexico.

"Rising U.S. pork production places an emphasis on exports and growth," he said. The rising value of the dollar will make it difficult to continue that growth in 2017, Stuart said.

The long-term trend, however, is still favorable to the U.S. industry, Stuart said. That's because the global population expects to grow by about 78 million annually and "everyone has to eat."

"The future of food production is very good," Stuart said. "The global middle class is rising focused on Asia. It opens new opportunities for pork products and, longer term, the global markets have huge potential."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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