Hog Market Disruption Will Impact Beef

Hit hard by retaliatory tariffs from Mexico and China, the U.S. pork industry suffered a horrific July, and the spillover is likely to affect beef. ( NPPC )

The U.S. pork industry suffered a horrific July, and pork’s woes are likely to affect beef. The pork industry was hit hard by retaliatory tariffs from Mexico and China, and coupled with increasing U.S. production, lean hog prices are down 20% since the week ending June 22, 2018.

That third week of June saw lean hog carcass prices at $84.05 per cwt., producing average farrow-to-finish profits on a cash basis of $47 per hog, according to Sterling Marketing, Inc. For the week ending July 27, lean carcass prices had declined to $67.39 per cwt., and farrow-to-finish profits stood at $14 per head.

Those profit margins, however, will continue to erode, according to analysts, and the CME futures markets show agreement. August Lean Hog futures at the CME have declined 17% over the past month, and the December contract now trades in the $46 per cwt. range.

The catalyst for pork’s rapid July decline was retaliatory tariffs, but analysts note there is more bearish news, namely that all three major proteins are in an expansion phase.

As pork exports took a direct hit from the current trade war, more pork was available for the domestic market, creating more competition for consumer spending. That comes at a time when both beef and poultry production are increasing.

Sterling Marketing president John Nalivka projects U.S. beef production to increase 3.9% in 2018, and pork production up 4.1%. Additionally, U.S. poultry production is expected to rise 3% this year. Increasing red meat and poultry production means per capita consumption in the U.S. is projected at 222 pounds, the largest since 2007.