When forecasting what to expect for the meat industry in 2017, the first thing on everybody’s mind is: "What does a Trump presidency mean to my business and the industry?"
Like many of you, I’ve been through enough election cycles not to expect everything that’s been promised to be delivered. There are encouraging and troubling things that were part of the dogma that got Donald Trump elected. The following are my thoughts and reflections as we move forward into the New Year.
Other than labor availability and exports, Trump’s policies may, for the most part, be good for business. Our ability to maintain a Supreme Court that enforces actual law and does not freelance was the biggest reason to be concerned about another Democratic administration. Fortunately, we will have a president who may act as a CEO, unlike previous administrators. The last president who acted as a CEO was Ronald Reagan, and many remember his successes. If President Trump selects good people and lets them do their jobs — supervising them much like a successful CEO does with his staff — then we could be up for four years of a very good business environment.
A prominent question is, how realistic is it that Trump will build this billion-dollar wall that will protect us from the incoming people from Mexico who are seeking a better life? I predict it will fall down the priority list very quickly.Other than labor availability and exports, Trump’s policies may, for the most part, be good for the meat industry.
What is more likely is better enforcement of existing laws and I-9 verification. The current verification system is tenuous at best. In addition to other industries, labor availability is troubling for protein producers and restaurant operators. Both industries are very heavily dependent on entry-level labor, and — being realistic — Hispanic labor is an important part of our labor force. While we do our best to make sure everyone who works for us is legal, shrinking the available supply of entry-level labor will affect us, because it will create more competition for a smaller group of entry-level workers.
Unfortunately for the industries involved, not many of us raised our children to flip burgers or to harvest the crops. We need labor that comes to work every day and performs these tasks. Typically when I talk to CEOs, entry-level labor is always first or second on the list of what keeps them up late at night. In the protein business, it’s our second biggest cost-line item.
In any commodity environment, a small shift in supply can create dramatic issues with the market. A small shift in the availability of entry-level labor force could be a significant event. It was America where many of our forefathers came to do better, so we desperately need entry-level workers in all our businesses. The good news is the American dream is still alive for many living outside this country.
I see good things for the energy sector, beginning with the increased use coal again, assuming EPA restrictions begin to be relaxed. I think the Keystone pipeline project will be continued and other projects that have been stonewalled under the last administration will be freed up and get executed. It is my hope that those who seek to over-regulate all sectors of agriculture can be moderated.
Furthermore, it’s hard to imagine that we will be lucky enough to enjoy low energy prices and low feed ingredient prices forever, so we need to prepare ourselves to be more efficient with feed conversion and energy use. Feed ingredient prices should remain low until the crop report in late June 2017 comes in. I would consider hedging a portion of your soybean crush and corn purchases.
It also appears that OPEC is finally committed to restricting oil output that may result in increased energy prices. We have all learned sustainability is all about driving out unnecessary costs. But we can’t ignore consumers and give them what they want in terms of vanity. We must apply some common sense. Sustainability is all about common sense and less about saving the world, despite what many do-gooders may be saying.
Another consideration is that animal welfare continues to be increasingly driven by consumers dictating to retailers and operators — concerns get pushed down to the industry versus traditional government regulations. Even though I think the Trump administration will be friendlier in this matter, consumers will still continue to demand that we be better stewards of their perception of animal welfare and social issues.
We will be forced to adopt certain things that make us less efficient and are not necessarily better for animals but will make the consumers feel better. We must continue to educate misinformed consumers so their misinformation doesn’t become our reality. We also need to continue to become more efficient, because statistics show we will be required to deliver 50 percent more protein in the next 50 years, regardless of what resources we will be given.Overall, the meat industry's forecast for 2017 is not one that needs to be feared, but rather one that should be monitored regularly so adjustments can be made based on informed decisions of the changing times.
Regarding predicted profits for 2017, despite very favorable feed and energy costs early in 2017, it will be a challenge to increase profits. The U.S. Department of Agriculture projects a slight increase of 2 to 3 percent next year, with chicken being on the lower end of the increase and beef and pork slightly higher. This will make increased exports critical because domestic demand growth will not be sufficient.
Current sources state Trump intends to proceed with his plans to withdraw from the Trans Pacific Partnership (TPP) agreement when he takes over the helm, making potential trades with the Pacific countries less favorable. Certainly there will be a new agreement enacted, but until that is put in place, we don’t know how the export market will look.
Export demand could be dramatically affected by disruptions resulting from trade negotiations by the Trump administration. A strong U.S. dollar may also create lower demand. Consumers in Third World countries want more quality protein, and issues with swine production in China might help force more liberal trade policies from the Chinese. Perception of U.S. products remains very favorable. Let’s hope support for exports grows to create the demand required for the aggressive production scheduled planned by U.S. producers.
Overall, the forecast for 2017 is not one that needs to be feared, but rather one that should be monitored regularly so adjustments can be made based on informed decisions of the changing times. Be aware that changes can be for the better in the long run, even if they start off a bit rocky. It’s easy to worry about what might happen when the reality is, we won’t know until it does happen. Also, remember, few things happen overnight.
Stay alert and vigilant, my friends, and we will all come out of 2017 stronger and more prosperous. NP
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