Giant pork surplus awaits Americans as trade wars risk exports
Donald Trump's trade wars are making pork a bargain.
American production is poised to reach an all-time high this year, and output is forecast to surge again in 2019. The supply boom comes as tariffs from China and Mexico threaten to curb export demand, leaving Americans with a mountain of cheap meat.
On Saturday, July 14, in Dallas, as many as 30 people on a local bacon-focused food tour were set to traverse the city chomping down on bacon donuts, bacon brown sugar ice cream, bacon jam and candied bacon. While retail bacon prices are down in the past 12 months, they're still up from six years ago, so any relief from higher costs will be welcome news to the pork enthusiasts.
"It's almost like a bonding experience," said Jeanine Stevens, the owner of Dallas Bites! Tours, which takes participants to little known restaurants and other eateries. "Bacon is a kind of food that people just feel a little bit lighthearted about. It's a fun food."
Other Americans might agree. The U.S. Department of Agriculture is predicting overall pork consumption next year will climb to 53.3 pounds a person. That's the highest since the early 1980s.
But the demand swell isn't enough to make up for the gains in production, and hog futures are trading near their lowest for this time of year since 2002. "Unprecedented change" is expected for global pork exports in the second half of 2018, and rising pork supply will pressure the U.S. market the rest of the year, Rabobank analysts including Chenjun Pan said in a report emailed on Friday. Hedge funds just more than doubled their wagers on price declines.
Part of the reason demand hasn't rescued prices is because pork is vying against cheap chicken and burgers. Total U.S. meat production is forecast at a record in 2018 and is set to climb again next year, the USDA estimates. Cash hogs may average about 42 cents a pound in 2019, down 7.7 percent from this year, the department predicts.
For hog futures, "the risk going forward is we have huge numbers of hogs coming at us and huge numbers of beef and poultry," said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.
Hedge funds raised their net-short position in hogs to 8,718 futures and options in the week ended July 10, according to U.S. Commodity Futures Trading Commission data published Friday. The holding, which measures the difference between bets on a price increase and wagers on a decline, compares with 3,260 a week earlier. Total short holdings jumped 12 percent to the highest since the data begins in 2006.
Hog futures for October settlement fell for five straight weeks through July 13 on the Chicago Mercantile Exchange. On Monday, the price dropped 0.7 percent to 54.9 cents a pound at 8:46 a.m.
The glut of meat isn't likely to shrink soon. U.S. pork packers have been opening more processing plants and another is expected to come online in 2018, CoBank analysts said in a June report.
"With that increased capacity, producers are unlikely to pull back hog numbers as long as prices are covering variable costs," the analysts said.
Still, what's been a boon for carnivores is hurting American farmers.
Tariffs from China and Mexico mean "40 percent of total American pork exports now are under retaliatory tariffs, threatening the livelihoods of thousands of U.S. pig farmers," the National Pork Producers Council said in an emailed statement on July 6. "We now face large financial losses and contraction because of escalating trade disputes."
That spells trouble for Maschhoff Family Foods, a pig producer in Carlyle, Illinois. The hog unit could post a loss of $100 million in the year that stared on July 1, according to Ken Maschhoff, chairman of the company. That would be a record loss in a 12-month period for the operation, which sells about 5.5 million hogs a year from 550 farms across nine states.
Rather than expand domestically, the company may invest in hog production in Europe or South America if trade tensions persist, he said.
"We had anticipated kind of a decent 2018 year, with a break-even 2019 year, and now both years will be in the red for us," Maschhoff said.
This article was written by Megan Durisin and Justina Vasquez.