From Farm Journal written by Jennifer Shike.

 

The pork industry is still evolving out of the rubble of the coronavirus pandemic, says Lee Schulz, an economist at Iowa State University.

 

But certainly, more optimism abounds in the U.S. pork outlook heading into 2022 than the industry experienced a year ago. 

 

“With the world in the throes of the COVID-19 pandemic, no one knew how things were going to fall out a year ago,” says Joe Kerns, president of Partners for Production Agriculture. “Who could blame us?”

Although the U.S. is still feeling the impact of COVID-19, it is not surprising us any longer, Kerns adds. 

 

“We are trying to understand the ramifications rather than having all kinds of questions in the air, specifically as it relates to the animal supply relative to shackle space,” Kerns says.

 

Economists believe pig farmers have every reason to be more confident going into 2022 so long as the U.S. can keep foreign animal diseases such as African swine fever (ASF) out of the country. 

 

“Biosecurity is likely to be top of mind in 2022 — not only to keep African swine fever from entering the U.S., but also to address many of the herd health challenges we saw in the past year,” says Christine McCracken, executive director animal protein at Rabobank.

 

U.S. hog prices depend on domestic meat demand as well as the ability of the industry to export pork out of the country, adds Scott Brown, an economist at the University of Missouri. Strong exports of U.S. pork to China will move hog prices higher, while a reduction could make prices move lower. 

 

Structural drivers such as labor shortages and inflation will continue to keep the 2022 pork outlook interesting. 

 

“Despite rising pay, finding employees is more and more difficult. It’s a labor shortage, and I don’t use the word shortage lightly. The robust demand for agricultural labor faces a backdrop of increasingly threatening macroeconomic and demographic trends,” Schulz says.

These four economists weigh in on the 2022 pork outlook and share their advice for pig farmers heading into the new year.

 

What is your 2022 pork outlook? 

 

Brown: Hog prices in the first half of 2022 should be reasonably good as pork supplies remain below year-ago levels. Prices probably won’t reach 2021 levels but should keep producers in the profitable range. The second half of 2022 is less certain as supplies expand, placing downward pressure on prices. For the year, hog prices should be around 10% lower than 2021.

 

Kerns: My outlook is cautiously favorable. I think we’ve got a good setup. There are things we need to do – specifically, biosecurity to keep ASF at bay — but I think we have a very promising outlook. On a scale of 1 to 10, I give the pork outlook an 8. Input costs moved higher in 2021 and should moderate a bit in 2022. The real key is, and always be, what happens to revenue. The forward curve for pork looks good, but the trick is turning the demand for pork into demand for pigs to allow the producer to participate. 

 

McCracken: We expect another strong year as the supply of pork is expected to be fairly well balanced with demand – which typically supports a healthy margin environment for producers and packers. That isn’t to say the industry will not face challenges. The same cost pressures we saw this year, including labor, energy and distribution, are still going to be issues in 2022 and in some cases, possibly worse. Regulatory constraints will also raise costs in the year ahead – not only in California with Proposition 12, but with line speeds, immigration and water use. Overall inflation in 2022 will make the business more challenging for producers and consumers, which could ultimately impact demand for pork. The upside of rising costs and labor constraints is a general reluctance by producers to rapidly expand production, which should extend this period of profitability for the industry.

 

Schulz: Swine inventory expansion or contraction seem equally likely given current and potential market signals. Costs were a headwind to producer returns in 2021. According to the Iowa State University model for farrow-to-finish production, costs were estimated to have increased 26% or $17 per carcass hundredweight (cwt) in 2021 compared with 2020. This translates into an increase of $35 per head in 2021 compared with 2020. Feed costs were a big part of this, but pork producers use numerous inputs and services and most all were up notably in 2021. Many non-feed variable costs could be up again in 2022. Propane prices, for instances, are expected to jump this winter. Higher hog prices have helped offset the rise in costs. On an annual basis, hog prices were 50% higher in 2021 than in 2020. Moderation in costs and revenues seems imminent for 2022. Costs are forecasted to decrease 5% from 2021 levels. Still, on an annual basis, costs are expected to remain quite elevated relative to historical levels. Hog prices are forecasted to decrease 13% from 2021 levels.

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