Straight Talk: Black-eyed peas, pork, and great balls of fire (January 2012)
Tracy Ann Raef
When the clock strikes midnight on December 31, people around the world will celebrate the New Year with different customs and traditions. Many of the New Year customs are to cast off the bad spirits of the past year, such as a Scottish tradition where men swing balls of fire over their heads as they walk down the street.
Other New Year traditions are carried out to ensure prosperity and luck. In the Philippines, it’s believed that wearing polka dots and eating round-shaped food will bring wealth and prosperity, since the round shapes are similar to coins (and wealth).
If wearing polka dots and waving a ball of fire over your head isn’t your style, there are other customs that might have some appeal. The Dutch have a tradition of eating donuts, believing it brings good luck. In many areas of the United States, people welcome the New Year by eating black-eyed peas. Along with the black-eyed peas, don’t forget to include pork. The hog and its meat are considered lucky.
But for most of us, the New Year begins early in December with predictions of what the future holds. To kick off the New Year, Steve Meyer, founder and CEO of Paragon Economics, answers a few questions about the industry and markets. So grab a ham sandwich and continue reading!
Q: Currently, export markets contribute significantly to the profitability of the pork industry. Are we reaching the limits, or how much more can these export markets grow?
A: I don’t think so, unless we impose restrictions on ourselves because we think it is too risky. Consumer incomes are growing in major markets, we can deliver cost-competitive products to Asia, the Korean Free Trade Agreement alone could add $10 per head to values over the next 15 years, and the US dollar is weak and likely to stay that way. I see only growth for exports in the next 3 to 5 years.
Q: With the hard economic times, has consumer demand for niche pork decreased? What is its future for the next 2 or 3 years?
A: United States consumer level demand is still over 4% higher for the past 12 months than it was for the same period 1 year earlier. But the most recent 3 months of data (June-August) are indeed showing some weakness. Pork usually fares better than other species in recessions just because we don’t have as much exposure to the higher-cost day parts of the foodservice trade. I’m not alarmed by the slowdown. I expected it and demand is still relatively strong. Should it continue for a long time, though, it could pose some problems.
Q: What role will ethanol have in the future price of corn?
A: The same as the past 2 to 3 years. Ethanol now uses and will continue to use a larger portion of the US crop than does feed or residual. The plants are there and the Renewable Fuel Standard will grow from 12.6 billion this year to 15 billion in 2015 and that is not going to change. The only respite would come from a major oil price break, and I don’t think that is likely to happen.
Q: Will corn ever be under $3.00?
A: In economics, one never says never, but this is pretty unlikely unless we get a HUGE jump in yields. That is not just a trend increase, but some quantum increase that shocks the supply side. Could happen, I suppose, but we’ve never seen it before.
Q: What will be the new baseline for hundredweight?
A: It looks like it will be in the range of $82 to $90 per hundredweight carcass. Futures on November 2, 2011, said $86.56 for the 2012 average and that had corn in the mid-$6 area and bean meal at $310 to $320.
Whatever the future holds, best wishes for a safe and happy New Year!
— Tracy Ann Raef