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When demand is everything, prosperity is essential

Dennis DiPietre is increasingly convinced that 2019 is setting up to be the year of the great pork price mirage.

Friday 21 December 2018 (11 months 17 days ago)

The pigs are coming, that much is known. Will there be enough demand to produce profitable market prices in 2019? That is not known. Strap in, we are going to wander together into global economics as we end up the year, a topic many would aptly call “common sense made difficult”.

I am increasingly convinced that 2019 is setting up to be the year of the great pork price mirage. As we move in time toward a glimmering promise of improving demand and prices, always signaled to be 2-3 months out, we are likely to see it slowly evaporate the closer we get in time to that pool of refreshing, anticipated future profitability, only to see it reappear on the horizon to beckon us forward once again.

At the present time, the pork markets in the United States are anticipating a major improvement by summer even though total production both in the US and the world is expected to grow, albeit at a slower rate than 2018. The great leap forward for summer prices seems dependent on the big stumble in Chinese production due to ASF continuing coupled with the potential to solve the tariff issues early in the first quarter of 2019. This scenario sees Chinese imports of US pork dramatically increasing as the year wears on. Unfortunately, there is also other stuff afoot that seems likely to blunt the effect of that even if it happens as envisioned.

The trade war between China and the US, coupled with a decrease in the demand for technology manufacturing is noticeably slowing the rise in per capita income in China in the short run and will thereby slow Chinese consumer demand. Though numbers are hard to get, it will also be difficult in most countries to support the same consumption of pork, as it has been in China, after local ASF outbreaks occur regardless of assurances about no ill-effect on human health. Other challenges to the trajectory of globalism throughout the world are also beginning to unravel future certainty and could begin to affect worldwide demand.

Current consumption in the US (and elsewhere) is largely a function of current income, but it is also significantly driven by feelings of wealth or security, which is a perception of future income. In other words, someone with an adequate to high monthly income, well able to afford a moderately high standard of living, may decide to postpone and drawback on purchasing if their wealth is diminished temporarily by a steep decline in stock investments or retirement fund balances. This happens even though their current income is unaffected.

The political uncertainty in the United States, driven by a relentless attack on the presidency of Donald Trump, is helping put a case of jitters in the US stock markets. When people’s perceptions of financial well-being is disturbed, both in the current period and by painting a pessimistic outlook for the future, it will decrease total demand as spending is typically pulled back to build a war chest for the perceived hard times to come.

There is increased talk of a recession in the next year or in 2020 in the US. The prospects for a bi-partisan and effective growth-oriented government policy, while hopeful around some issues such as infrastructure investment, is fading like the pork price mirage. Globally some of the same things are happening in the EU. The French “Yellow-Jacket” movement, arising out of a perception of entrenched pessimism about future prosperity for the common citizen has brought the economy to a standstill, at least in the moment. The prolonged and stumbling BREXIT process, which is encouraging calls for a 2nd referendum is undermining the broader perception that policy makers are competent to create a future environment capable of producing lasting prosperity. That perception will slow personal consumption and cause the postponement of current investment. The pigs are coming.

Fake meat, plant protein made to look and taste like meat, and laboratory produced meat are beginning to draw some rather large investments from the common names in Big Ag. So far this doesn’t siphon very much demand from the main market channel, but these investments may suggest that optimism regarding solving issues of antibiotic residue/resistance, zoonotic disease, environmental challenges etc. may be fading.

Besides the pigs, something else is coming. A new outlook, a new chance, a new possibility, an overthrow of the traditional ways of thinking that will bring good news that is not a mirage. That’s the meaning of this season, so you have my sincerest best wishes for peace and I pledge to be here in January to help understand how all of this is unfolding when the pigs do in fact begin to arrive.

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