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As we begin the new year, its time to take an assessment of the current situation and consider the opportunities and the challenges. In much of the world there are multiple roadblocks to producing pork at the capacity (where capacity is the current stock of buildings, processing capacity etc.) which each country already has in place. The challenges are multiple but almost all of them are either related to ASF outbreaks or the responses to the multiple resurging outbreaks of Covid-19 disease. It is difficult to reach any other conclusion than most of the governments in developing countries have made the situation worse and worse again with a serial set of solutions which have damaged supply chain functioning on a local and global level and saddled the world with what will almost assuredly be a multi-year wave of serious inflation.
I could detail all of this for you in a way which would give me the short-term satisfaction of heaping scorn on all those who can’t or won’t see beyond their initial actions to the cascading set of secondary and tertiary effects which materially damage people’s lives for years to come but let’s resist falling into the same trap and talk about what you can do about this to potentially seize some opportunity and ride out the problems with less damage.
Right now, broken supply chains and processor slowdowns (as well as trucking and barge traffic slowdowns) are due to labor illness etc. and are keeping pork prices artificially low. This will begin to lift first on the local distribution chains and processing plants and then eventually will start to clear on the global level. This means that most likely, pork prices are going to rise this year as production capacity has been reduced in the EU and in the US especially. It will be important to pay extra close attention to costs without making avoidable mistakes that single-minded people often make. This will ensure the best possible profit outcome as prices recover.
What follows are general suggestions for you to evaluate for success in inflationary times. Make sure you carefully evaluate your unique situation before blindly implementing any of them. That said, the most fundamental statement about any business is, “when you are out of cash, you are out of business”. Costs in general are going to rise and that increase has already started. You are going to need buying capacity to get through this so now is the time to meet with your lender and secure all the borrowing capacity you can possibly justify. Now is finally the time to dump short-term, variable interest rates on any debt regardless of how attractive the interest rates have been and fix the rate immediately because it is going up and up again and once that starts it is usually difficult to make the switch.
In a time of rising prices, if your situation calls for it, making fixed asset purchases early in the inflationary cycle will beat coming price increases. By analogy, on the household level, when meat or other storable foods are temporarily featured or on sale, put some extra in the freezer or the pantry. Same applies to business purchasing. This strategy will cause prices to rise over time if everyone begins to implement it so you need to evaluate whether it is too late, and you can weather the next couple of years with current asset stocks and undertake repairs and maintenance until production capacities and distribution (supply chain) capacities restore lower prices. Be somewhat careful because when supply chains resolve it will be sudden and prices for many goods that have gone up will drop quickly. You don’t want to be the last one to buy extra inputs before prices drop. As an example, many of the truck manufacturers are held up due to inability to get certain chips/circuit boards to complete the production. They have a big backlog of trucks waiting to get the chips and when they become available expect truck and auto prices to return to more normal levels quickly with sales and other deals to move inventory.
You should consider forward pricing (some of) the year’s grain and fuel requirements early in the year (by locking in the prices either by contract agreement or through a futures exchange contract). Be sober and don’t panic, the key is to lock input purchases at prices which will deliver some level of profits if still possible. Best idea is usually to scale up purchase price locks over time rather than lock the whole year on one day. Don’t hold out for some mythical higher profits from letting everything ride on the open market unless you are one of the super rich. With respect to feed, watch the spring planting in the US. High prices have encouraged farmers to plant every acre they can find in corn and soybeans despite record high fertilizer prices. If the spring weather is good for feed grain crops, then it will only be the supply chain failures that keep prices high and these will resolve faster than waiting for the opportunity of lower prices on next year’s crop. A good spring will mean lots of grain in the fall and by then, the port situation and transport should be substantially better. In short, we are talking about forward pricing for the spring and the summer while watching for developing fall outcomes.
Because fertilizers are at record prices in many areas of the world, it is time to renegotiate the value of your manure nutrients if you are providing them to someone else. If you are only giving them away to get rid of them, time to start selling them. Hog manure is a tremendous resource which gets a bad name due to some failures to properly exploit it in some regions where hog production is intensive. The more valuable the crop, the higher you can push manure prices, especially if there is any competition among users at all.
Examine any sales contracts you have (if any) and try to renegotiate them to include a surcharge related to rising costs, whether it be for fuel, labor or other energy, especially. Since world oil is still priced in US dollars, the US inflationary problems will be directly transferred into the world oil market pretty much one to one.
