Meat Price Futures Up In The Air

By Peter Thor, President, Bellissimo Foods

Price volatility and inflation are back throughout our food cost chain. As presented in last month’s newsletter, dairy prices have increased in both price and volatility. Pork and beef costs have also seen rapid changes and we believe are primed for more. Examining supply and demand changes affecting the global meat industry yield directional clues of market impacts going forward.

Consider the magnitude of international trade in pork and beef worldwide. International markets account for a staggering 30% of U.S. pork production and about 15% of beef production. Demand for both are relatively elastic, meaning that small changes in supply can result in significant price changes. Restricting exports means more domestic supply and lower domestic prices which we enjoyed until recently. Expanding export demand reduces local supply with resulting price increases throughout the food production chain. Currently, the biggest factors affecting prices are:
(1) Tariff disputes with China, the European Union, and Mexico
(2)African Swine Fever (ASF) contagion

U.S. pork exports are posting strong results due to recent tariff exemptions according to data released by USDA. August pork exports increased 22% from a year ago to 221,586 metric tons (mt), and January-August export volume 4% ahead of last year’s pace at 1.7 million mt.

Exports of beef also remain on a strong pace. Similar to pork, the U.S. beef industry looks forward to gaining tariff relief in leading markets.  Though volumes are smaller, Chinese retaliatory tariff penalties currently remain in place for beef, volume increased 23% from a year ago.

Domestic cost basis for pork 72’s have risen 80% since the first of the year. It is our opinion that further significant domestic price increases will occur in coming months due to a combination of government intervention and ASF. Higher pork prices will tend to also drive beef prices upward and to a lesser extent poultry.

The African swine fever (ASF) is a deadly disease for pigs/hogs for which there is no cure and no vaccine (yet). The disease has only had limited media exposure in this country because the disease has not spread to the U.S., but it has now spread to more than 40 countries with the greatest affect in Asia. Highly contagious to swine but not humans, it has reportedly decimated an estimated 50% of the Chinese breeding pigs. To gain perspective why this is important, we note that China produces half of the world supply of pork, and is the leading consumer of pork. Prices in China began rising substantially this month and China’s agricultural ministry has said they could surge by an estimated 70 percent in coming months as a result of the outbreak. Pork accounts for more than 60% of Chinese meat consumption.

The magnitude of the supply loss in China is greater than the entire U.S. pork production. The global implications of what is happening means that pork exports and prices will be rising, which will challenge exporters in all regions to find an appropriate balance between increasing production, chasing high prices for exports, and supporting local customers. Several developments have delayed the impact in the U.S.

• The trade war with China makes the U.S. pork exports the choice of last resort
• Chinese tariffs on U.S. pork, beef and other products distorts international markets
• Consumption of pork may decrease due to shortages and high prices
• Brazil and the European Union, our competitors, are eager to expand their market share of Chinese imports.

This story is not over! We’ll keep you informed about this and other important subjects affecting our industry.

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