What will the U.S. export picture look like over the next three to five years? As China makes progress rebuilding its hog herd, that’s the question analysts continue to mull as they look at what’s ahead.
According to a new report from CoBank’s Knowledge Exchange, China’s pork market is showing the early signs of herd rebuilding and hog prices have fallen 30% from their peak a year ago.
“This increases the risk of an oversupply of U.S. pork if exports to other markets, primarily in Asia and Latin America, are unable to absorb this supply,” said Will Sawyer, lead economist, animal protein, CoBank.
The U.S. pork industry has built multiple new plants over the past four years, increasing packing capacity by 12%, with much of this new capacity eyed for international markets. Losing export opportunities could lead to difficult conditions for U.S. hog producers and processors alike, the report said.
The report notes six strategies and changes the pork industry can make now to help dampen that impact of lost export opportunities.
1. Shift the trade relationship from transactional to strategic.
Suppliers with strategic relationships in China will have greater success during the down cycle than those who don’t. “While we do not expect China to change overnight from being an opportunistic buyer of animal proteins, we do see avenues for U.S. packers to strengthen the relationships they have with the importers and customers of their end products,” the report notes.
2. Pursue trade diversification.
Efforts to spur demand from other markets is an imperative. Markets like Japan, Korea and Mexico are critical, the report says, making trade agreements like the U.S./ Japan Trade Agreement and the USMCA vital for the U.S. pork sector to retain and grow exports. The U.S. pork sector also has great export opportunities in numerous smaller markets, especially in the Caribbean, Central and South America.
3. Better appreciate customers at home.
The greatest opportunity and possible challenge for the U.S. pork sector is the U.S. market itself, CoBank says. With few exceptions over the last 30 years, annual per capita pork consumption in the U.S. has been range bound between 48 and 52 pounds.
4. Make yourself too big to fail.
The relationship between a hog producer and their packer can become “strategic,” whether that be by contract, ownership, size or efficiency to name a few. In an environment where demand is falling as exports shrink, producers with the deepest relationships will better weather any changes in plant capacity, CoBank says.
5. Know your numbers and raise the bar.
Benchmarking is key. But CoBank says it’s only valuable if the producer uses the data to identify and address weak points in their operation.
6. Liquidity, liquidity, liquidity.
Liquidity in the U.S. pork sector could help producers and processors through this difficult period. “Margins for producers have been reasonable the last five years, but producers’ operations – and their balance sheets – have expanded in sync with the new processing plants. Now that producer margins average a loss of nearly $10 per head in 2020 on an unhedged basis, liquidity takes on even greater importance,” the report says.
Read the full report, U.S. Pork Export Outlook: How to Save Our Own Bacon as China Rebuilds.
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The Link LonkNovember 06, 2020 at 06:35AM
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6 Ways to Keep Bacon on the Plate as China Rebuilds - Pork Magazine
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