Welcome to 2019, a year filled with potential greatness, but also potential disappointment. Grab a chocolate from the symbolic business box, take a bite and hope for the best!
We have another stalemate-leaning government that is multicultural in composition. The new U.S. House of Representatives is Democrat-controlled with 103 women, 48 African-Americans, 11 of Asian descent, four Native Americans and eight who identify as LGBT. Meanwhile, Republicans control the Senate and the executive branch is controlled by President Donald J. Trump.
Unless you’ve been living under a rock, you know that Trump has been and still is a president that elicits extremely polarized opinions — a large number of people either absolutely love him or absolutely hate him. For our industry, Trump has been unpredictable in terms of the issues he embraces — some of them are good for industry and some of them are not, specifically his stance on immigration. A reasonable 2018 Farm Bill was passed by the U.S. House of Representatives and signed by Trump just prior to presstime.
Many of former President Barack Obama’s administration policies that will continue to challenge food manufacturers have been delayed by the current administration. The Environmental Protection Agency (EPA) has been restrained considerably, including on food-safety regulations. These delays will continue if the current administration maintains the executive branch. The U.S. Department of Agriculture (USDA) and Food and Drug Administration (FDA) may be merged. Certain compromises with the new Democratic Congress may need to be made in order to barter budgets and other issues.
Barring unforeseen events, the supply of feed ingredients (corn and soybeans) should be robust again. In 2019, acres planted should be stable and yields should continue to increase. This equation means we should have inexpensive feed ingredients for the next 18 months.
Petroleum prices travel in a range with corn, beans, and wheat; currently those look to be depressed for the near term. Unless there’s a catastrophic event, which is always possible, it looks as though costs will be moderate. Interest rates will also continue to be moderate because our economy has cooled down, creating a minimum amount of inflation. This will compel the Federal Reserve Board to temper ambitions to raise interest rates.
Weather is always unpredictable. It will affect crops and our ability to raise animals in a safe environment. It will also affect people visiting restaurants thus having an impact on consumption. The weather forecast calls for more moisture than usual in the Sunbelt and a mild winter in the Midwest. From the Farmer’s Almanac and CNN, future weather predictions include an 80 percent chance of an El Nino, which would bring extra moisture to the Sunbelt. Additionally, predictions call for winter temperatures in the Midwest to be warmer than normal, with forecasts of a snowy and colder-than-normal in Canada.
Entering 2019, we will continue to have an excess supply of pork, chicken and beef. The trade war has reduced exports; there are more hogs and cattle in the U.S. and prices are lower. Trade issues have led to an increasing supply of beef and pork, which in turn is pressuring poultry sales. The extra beef and pork means retailers are featuring those products more than poultry, luring consumers away from chicken purchases. I expect the trade pressure to drop significantly in 2019 as potential new agreements and trading partners help reduce the extra supply of poultry, beef and pork on hand. Because of the lower prices, restaurants and retailers have been promoting pork- and beef-based dishes over chicken. According to Reuters, Americans are eating more burgers, bacon and ribs as a result, and chicken demand has been hurting. Tyson Foods’ and Pilgrim’s operating income from chicken dropped significantly compared with the previous year.
Ongoing trade conflicts have led to higher tariffs and more production has stayed in the U.S. market. This has driven prices lower throughout the supply chain, meaning the potential for better margins for restaurants and grocery stores. China continues to dig in its heels on the trade war. The country’s leaders have made deals with Brazilian companies for chicken and pork while they continue to try to find other sources. We in the U.S. have the job of negotiating a sound business deal; however, China’s negotiators’ job is to bluff. The real question is, when will this be settled? U.S producers must find alternative markets and hold China accountable. We are this far into this trade war and should remain committed to bring everything to a favorable resolution.
What could change the picture significantly is a continued African swine fever outbreak in different parts of the world. This might actually boost overseas demand for U.S. pork, which should also help clean out the extra supply. Continued outbreak in China could also create a massive demand for pork. It is estimated that China consumes 50 percent of the world’s pork supply. This could be a game-changer in the U.S. pork industry.
U.S. chicken prices have remained attractive, helping to boost demand internationally. In terms of supplies, chicken demand had been growing at a pace like 2017. In early 2018, Pilgrim’s re-designated one of its large-bird deboning plants to no-antibiotics-ever and vegetarian-fed to help offset commodity market weakness.
Labor will continue to be challenged by the Trump administration’s tightening of the reins on immigrants who are used to staff many positions in the U.S. protein industry. Labor availability at all levels is a large part of conversations with CEOs. Finding those who truly care about working hard and putting out a great product is challenging. This is a very competitive labor landscape. Additional training and education, resources to make jobs easier, and benefits such as PTO and employer-sponsored retirement plans are all of high priority to candidates.
Regarding animal welfare, we must continue to be dedicated to this topic. Customers are becoming more and more sensitive to these issues. There are several other social issues that we need to be extremely sensitive to as well — the growth of the vegan and vegetarian population may be one of the biggest risks that we need to mitigate as an industry. It is estimated that 10 million Americans are vegetarians, vegans or former vegans.
In closing, 2019 should be another interesting year. Don’t be surprised by what’s inside the chocolate you choose from the 2019 box. Instead, be prepared to take advantage of the delicious opportunities when you find them, and not burdened by complications that come your way.
A great quote from Theodore Roosevelt says it all: “It is not often that a man can make opportunities for himself. But he can put himself in such shape that when or if the opportunities come he is ready.”
I suggest you always have a backup plan ready as we enter this exciting, new year. NP