The counter-seasonal increase in prices continues, bringing much needed relief to U.S. pork producers.
Until this recent hog price upsurge, producers were expected to have experienced losses in farrow-to-finish production every month this year except for May.
Summer counter-seasonal price moves happen about every five years. They are often associated with a transitory event that overrides the normal summer high-price pattern, such as a down cycle (an overproduction phase which dominates the seasonal rise) or an exceptional series of events like the closure of major packing plants for several weeks due to COVID-19 outbreaks in plant workers.
Something that has not happened in the last 20 years is back-to-back counter seasonals in two adjacent seasons. The reduction in breeding stock (down 2%) and lower weight animals (under 119 lbs., down 3%) in the U.S. inventory revealed by the USDA Hogs and Pigs Report on Sept. 1 is probably responsible for this fall counter-seasonal price move.
What’s behind the fall counter-seasonal price move?
Two key things have likely contributed to this. First, on the supply side, the euthanasia of weaned pigs created a “small gap” in the production supply chain, in addition to the emptying of some finishing building coincident with euthanasia and the sell-off and closure of some unproductive breeding units once plants began to close. There has been a definite decline from the torrid pace of year-over-year increases which became apparent even in January of this year, approaching a surprising 5% to 6% increase.
On the demand side, the large volumes of pork going to China from Germany have been stopped. Not only has African swine fever (ASF) destroyed export demand in Germany, but they are also temporarily closing large-scale packing plants as the second wave of COVID-19 washes over certain member states in the EU.
ASF has also slammed the door shut on a portion of German weaned pig demand from Denmark and the Netherlands as the production supply chain lurches to a halt like a unit train with the engineer standing on the brakes. For now, Spain, the global leader in exports to China, seems relatively safe from an intra-EU spread of ASF since geographically, it hangs out on the Iberian Peninsula away from the rest of the EU states, not to mention the natural barrier of the Pyrenees Mountains between France and Spain.
It is a cautionary tale that apparently these mountains were not enough to stop Hannibal from snaking through some of the lower passes with his rather large army sometime in the 200s AD. Boars, however, are often content to follow the acorn harvest rather than suffering human conquest delusions. They tend to stay put until the food runs out and then they migrate to the next closest supply.
Unfortunately, there many more vectors for ASF transmission than boar migration and they become increasingly likely, the closer a region is to actual cases. The fall of Spain with ASF, though much less likely than Germany (the biggest non-surprise in current events), could create an unprecedented boon to other exporters such as the U.S., Latin America and Brazil for instance. We do not do schadenfreude here (pleasure derived from other’s misfortunes), so the earnest hope is that Spain remains healthy, exporting and profitable.
So, how long do we enjoy counter-seasonal pricing and profits this fall? It largely depends on how deep and long the hole is created by the destruction of weaned pigs, emptied finishing barns (now mostly refilled) and the length of Germany’s closures.
Germany is vigorously negotiating the return to export sales from a regionalization argument. Unfortunately, since finding the first boar with ASF, the discoveries are exploding and the area of contamination is widening. The heavier weight categories in the Sept. 1 Hogs and Pigs Report were starkly ominous to an extended counter-seasonal, but there have been so many disruptions and once-in-a-lifetime occurrences, that through no fault of the USDA, we may have to wait a few more quarters until the real picture is revealed in the quarterly reports.
Farm Journal’s Pork | Dennis DiPietre And Lance Mulberry, Knowledge Ventures, LLC | October 21,
Image Source – Canva.com