What does international and domestic demand for crops and pork look like? How is that impacting pork prices and pork consumption?
Dr. Dermot Hayes and Steve Elmore took part in this interactive session covering the economic outlook of the pork industry, including global trade and domestic demand for both crops and pork and shared the short and long-term outlook and price forecasts.
World Crops Economic Outlook
Steve Elmore, chief economist, Corteva
Corteva chief economist Steve Elmore gave an overview of the current economic outlook for pork and grain.
Food & Fuel Prices
- Markets are back to 2013-2014 levels
- Vegetable oils drove up the food price index
- The Consumer Price Index for food at home is the highest we have seen since the 1980s
- Pork is up 13.7% at an annual rate
- Diesel prices at $5-$6 make everything expensive
- Fed tools help with demand but we have a supply issue.
- Inflation is a monetary supply issue and will not be solved for at least 5 years
- The consumer saving rate is down to 4.4%. People are paying for inflation by not saving as much
The market is robust. Consumption outpaced production and that is leading to the inflation we are seeing in agriculture.Steve Elmore, chief economist, Corteva
Exports & Demand
- World trade hubs are vital to world markets
- Global commodity demand is being driven by higher exports
- Feed rations impact wheat and barley production, making this a food and feed issue
- Poor weather in South America is impacting the upcoming corn planting season which will result in higher prices.
- The Russian invasion of Ukraine has affected global wheat, sunflower and corn markets.
- The market is betting on how long it will take Ukrainian and Russian infrastructure to come back online.
- The market is functioning the way it is supposed to: high volatility leading to high prices
Dermot Hayes, Ph.D., economics professor, Iowa State University
Global events and the threat of foreign animal diseases continue affecting U.S. pork exports as they remain low compared to the previous two years.
U.S. pork prices and breakeven cost are high, which is why exports are down and profitability limited. Additionally, inventory is lower and consumption is higher this year so there is less pork to export overall.
Exports to China
- U.S. pork exports to China have gone down following a spike at the beginning of the pandemic
- Higher tariffs on U.S. pork means China prefers cheaper product, such as from the EU
- The hog production cost in China is one of the highest in the world. If it continues to rise, it would be an opportunity for China to lean on U.S. exports again.
Exports to the European Union
In a commodity market, the best place to be is the cheapest market.Dermot Hayes, Ph.D., economics professor, Iowa State University
- While Japan and the EU are high-cost producers, the U.S., Canada and Brazil are the lowest-cost pork-producing countries
- Utilities, construction costs and labor costs are all lower than other countries, namely Europe. The U.S. makes better use of those resources and is more efficient
- Europe’s Farm to Fork Strategy and sustainability policies mean they do not export as much as the U.S.
Short Run Projection
- The U.S. has temporarily lost its competitive position in world pork markets
- Fewer pigs are coming to market in the U.S. and there is less product available to export
- A collapse of Chinese imports has created a surge in EU exports to other countries
- EU and Chinese pork producers are losing money and are reducing production; there is room for an optimistic outlook for U.S. pork exports as we’re a low-cost producer
If China were to get back to production, and I think they will, and Europe continues to cut exports and production, and I do think they will–then U.S. exports will come roaring back.Dermot Hayes, Ph.D., economics professor, Iowa State University