Feedstuffs in Focus

SPECIAL REPORT: State of the pork industry: Navigating economics, policy amidst challenges

• Feedstuffs • Episode 275

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In this episode, we explore strategies to bolster the pork industry's resilience.

Christine McCracken, Senior Animal Protein Analyst at Rabobank, graces Feedstuffs Pork Nation with her expertise on the state of the pork industry. Curious about the path to recovery and what lies ahead in 2025 for pork producers? We're unpacking the improving financial health and potential for more robust margins, despite looming challenges like political uncertainties, tariffs, and changing immigration policies.

Discover why maintaining solid trade relationships with key partners such as Mexico and Canada is more crucial than ever. We also tackle how the industry is innovatively addressing labor shortages through automation and improved workforce management.

We also delve into critical economic concerns, including the national debt's effect on the US credit rating and its potential ramifications for agriculture. While sovereign debt issues linger, we discuss the importance of staying informed and engaging with lenders to mitigate risks. With only minor interest rate adjustments anticipated, some stability is expected.

As we close the year, Christine emphasizes the critical need for biosecurity and community support within the industry. Risk management takes center stage as pork producers are encouraged to partner with advisors to navigate shifting market conditions and capitalize on emerging opportunities.

Feedstuffs Pork Nation is brought to you by Alltech. Alltech delivers smarter, more sustainable solutions for agriculture through a diverse portfolio of products and services. Contact the Alltech Pork Team or visit go.alltech.com/swine-research to learn more.

Sarah Muirhead / Feedstuffs:

Welcome to Feedstuff's Pork Nation, where we dig deep and get to the heart of the issues affecting the pork industry. Your hosts for this episode are Mark Hulsebus of Alltech and myself, sarah Muirhead. Joining us to talk about the state of the pork industry from a financial, profitability and policy perspective is Christine McCracken, senior Animal Protein Analyst with Rabobank. Feast Us Pork Nation is brought to you by Alltech. Alltech delivers smarter, more sustainable solutions for agriculture through a diverse portfolio of products and services. Contact the Alltech Pork team or visit goalltechcom backslash swine hyphen research to learn more.

Mark Hulsebus / Alltech:

All right. Well, thank you for everyone for joining us for the final episode of Pork Nation podcast for 2024. We are thrilled and I do mean that thrilled to have Christine McCracken joining us today from Rabobank. Christine and I have known each other for quite a few years and we're going to have a quick discussion about kind of the state of the industry, maybe what we could expect in 2025 from her crystal ball in the financing industry and anything else that comes up that we want to make sure we want to make the audience aware of. So, christine, welcome to the podcast.

Christine McCracken / Rabobank:

Hey, thanks, mark, it's nice to be with you.

Mark Hulsebus / Alltech:

Appreciate you joining us very much, so I think one of the things that at least pieces of the industry are wondering about today is you know, we went through a period of 18 to 24 months. That was as tough as I can remember going back to 98, right, and I know you'd probably be in the same boat and now we've had a series of pretty solidly black months for a period of time here six, eight months, something like that, depending on who you are From your perspective. What's the financial position of the industry today, as we kind of close out 24 and head into 25?

Christine McCracken / Rabobank:

Well, it's definitely headed in the right direction. You know, as you mentioned, it's been a rough go. I think it really varies depending on your operation. The good news is that we can see a lot of black here in the months ahead and that's an awfully nice position relative to, maybe, where we would have been even a year ago. Lot that can happen, but I'm pretty optimistic for next year. I think balance sheets still have a ways to go. I mean, you know that's a pretty deep hole that we dug for the industry, as you mentioned, but you know, the market's really giving the industry a good opportunity to lay off some of that risk and I think you know, as I look at 2025, it looks like a nice year of healing and some really nice margins for the industry as we head here over the next several months, Depending on what happens. You know was some of the political wins, as they were, that could, you know, come in and disrupt things.

Mark Hulsebus / Alltech:

Yeah, we're going to talk about that.

Sarah Muirhead / Feedstuffs:

Should we talk about that? Let's talk about that.

Mark Hulsebus / Alltech:

Everybody wants to know. Sarah, go ahead Awesome.

Sarah Muirhead / Feedstuffs:

Oh, I was just going to say what do you see coming with the new administration? And from a policy standpoint, we can slice and dice this so many ways. And we talk tariffs, we talk immigration, you know all kinds of things. So what is what's number one on your radar screen, christine?

Christine McCracken / Rabobank:

Well, there's so many things. You know, I think immediately, as we head into January here, it's really this port strike and how much of an impact that could have on our exports. But longer term, with the new administration, it's clearly tariffs and immigration. You hit on it, you know it's very similar to what we saw in the last go around. I think that there's been some a lot of things talked about, but nothing certain and that's kind of where we are heading into this year. There's a lot of uncertainty and that, you know, from a risk perspective, as we think about it as analysts, it's obviously something that could happen and we have to be, you know, work through those scenarios. I would say that it's unlikely that all of the things come to fruition. You know it's more likely that we get, you know, a negotiation and hopefully, you know, as we head into 2025, you think about tariffs and the two big markets that stand out for me are Canada and Mexico, especially Mexico. They they make up, you know what 30 percent of our exports plus, minus and exports are, you know, obviously a significant driver of value for our pork industry. So, as I think about it, it's really Mexico. How closely can the new administration work with Mexico. Can they come to terms? That stands out to me as the biggest risk, but one that also there's some room to negotiate and hopefully we can come to terms.

Christine McCracken / Rabobank:

The other big one, though, is immigration and some potential action on deportations.

Christine McCracken / Rabobank:

It seems like that's a moving kind of discussion as well.

Christine McCracken / Rabobank:

Obviously, there's some give and take, and we don't know how that might end up, but what we do know from the first Trump administration is that they're serious and they obviously wanted to look at those things, and that could create some disruption in the industry.

Christine McCracken / Rabobank:

The good news is that we've learned a lot about how we need to address our labor force. We've automated in some cases, we're looking at some new technologies that can take some of that variable labor out, but we're also working closely with our workers and trying to understand their needs and be good employers. So I think there's been a lot of learning over the last several years that I think will hopefully help us through a fairly disruptive period for the industry. In theory, you know nothing, certain as I think, about the potential for disruption in the coming year, but you know, I think it's also important to realize we have the renewal of USMCA at year end and that's coming. So all of this is part of a longer term kind of discussion and I don't think anything will happen necessarily overnight, but it highlights how important those markets have become and how we really need to work to ensure they stay open. So it is a critical industry issue.

Mark Hulsebus / Alltech:

One of the things I vehemently agree with you on, christine, is the issue of Mexico being so important to us and I'll go so far as to say more important to us from a pork industry perspective. Important to us from a pork industry perspective. Had an opportunity to listen to Valeria Moy, who's the Director General of IMCO in Mexico City, at the Pork Action Group meeting in Florida in.

Mark Hulsebus / Alltech:

November, and One of the things I felt like came out of that conversation was there are questions around just how much Shinebomb can get done within Mexico as a government. You guys have a very interesting global perspective on those kinds of items. Any thoughts on that?

Christine McCracken / Rabobank:

Well, you know it's interesting. I've been meeting with a number of our clients in Mexico and I'd say that they're equally as reluctant to make a guess as to how much she can get done. But more broadly, you know where we sit. I think there's a lot to figure out still in the new administration in Mexico and I think they are working hard to better understand what the issues are. But it's unclear at this point, I think, from President Scheinbaum or her administration kind of what path they're going to choose to go forward. I think initial look is that it's a little bit risky, you know, a little scary.

Mark Hulsebus / Alltech:

It's a chippy conversation, I think.

Christine McCracken / Rabobank:

You know, but I think they're doing a lot. You know we're actually talking to them. Our team is doing some work with the administration to help them better understand, kind of some of the key issues and I think that you know, the industry itself is doing a good job trying to educate the administration on what might help ease that transition.

Sarah Muirhead / Feedstuffs:

What about here domestically, we're talking Farm Bill. I mean, are we? You know where are we at on that? What do you think is going to happen there?

Christine McCracken / Rabobank:

Well, that's a struggle to have a firm view at this point. I'd say that you know, like Mexico, we're trying to figure it out and how that might look. You know we get an extension and hopefully get some things worked out. But you know, I think that it's politics right and there's some give and take and as we look at next year and what could kind of evolve, I think that the administration, the new administration, appears supportive of agriculture. But agriculture is a broad basket. There's some give and take and I don't think we'll win on all accounts, but I do think the signs are good, that they remain supportive of the industry and that we're, I think, in good position to at least voice our concerns and that they'll listen. So I think that's a good outlook, as good as we can have, and I don't know in general what will end up happening in the final bill.

Mark Hulsebus / Alltech:

We've covered over the course of this past year, Christine, quite a few actually controversial topics Population and global demand. You know there's a lot of questions about that for us or in front of us as an industry and an aging demographic, not only in the US but, more severely, around the globe. I'm going to ask a pretty pointed question on a different topic today, and that is the national debt. There's a few people starting to talk about, or have a belief, starting to talk about the fact that in certain circles, it's being rumbled that a number of the global credit rating agencies were waiting for us to get through this election and maybe towards the end of 2025, we start to have a pretty serious discussion with the rating agencies about the creditworthiness of US sovereign debt. Do you have any feelings about that, Because there's a lot of implications of a downgrade in the US debt specifically to our industry, right? So any thoughts?

Christine McCracken / Rabobank:

You know, I probably would leave a lot of that discussion to our economists. Yeah, I tend to keep in my lane. I would say that it is still, you know, probably a year out from any major moves and there's still a lot they can do to address those issues. Obviously, the current path is unsustainable, we all know that, and there's still a lot they can do to address those issues. Obviously, the current path is unsustainable, we all know that, and there are signs that something is going to need to change, to come up with the least painful way.

Christine McCracken / Rabobank:

But one outcome is obviously a downgrade, and that's something that is still on the table, I suppose, as a risk. I'd probably put it, though, below some of these other issues that I'm worried about. So, you know, in the grand scheme of things, you have to look at all of the possible risks. Scheme of things, you have to look at all of the possible risks. For me, you know, as I think about it, that's probably one discussion that everyone should have with their lender to better understand, kind of what that might look like for their individual operation.

Mark Hulsebus / Alltech:

So, continuing on that thought a little bit, the short-term versus long-term rate discussion is inextricably woven into that question of sovereign debt rating. In a lot of ways, the bond market's starting to tell us one thing versus the short-term capital markets. What knowledge would you impart on our audience relative to what the bond market is saying versus short-term rates?

Christine McCracken / Rabobank:

And I probably, again, I'm not the best person to ask on this specifically. I would only say that that's yeah. I'll leave it for someone else to discuss on this fantastic podcast.

Mark Hulsebus / Alltech:

So we may take you up on that, Christine.

Christine McCracken / Rabobank:

I might need to I know a guy.

Mark Hulsebus / Alltech:

I bet you do. I bet you do so with that in mind. Short-term rates. Any thoughts there over the next six to 12 months?

Christine McCracken / Rabobank:

I'm probably not. I mean we are our team is has a house view that we'll see a little bit more, a little more moderation here over the next couple of meetings, but generally not looking for much more. You know, this is really kind of it. You know, I think they're looking for another 25 BIP hit, but that's it, and so you know. I think there were some views earlier in the year that from other banks that would continue to see cuts. Our house view has never expected that. So at this point I'd say maybe another 25 or 50, but that's it.

Mark Hulsebus / Alltech:

I think that's in a general agreement, I think, with a lot of agricultural lending organizations right now. You're not going to miss it by controlling your interest rate at this point right, it's not going to zero, it's not even going at this point. Right, it's not going to zero, it's not even going down. Another point, right.

Christine McCracken / Rabobank:

No, that's not the current view. No.

Mark Hulsebus / Alltech:

Yeah, yeah, any other watchouts for the industry as a whole that you'd leave with the group here on this final episode of the podcast this month, you know, I think maybe we can all catch our breath the group here on this final episode of the podcast this month, this month, you know, I think maybe we can all catch our breath.

Christine McCracken / Rabobank:

You know, after an inflection, you know a year of inflection, and and we're which we're coming out of. Finally, I think we all need to stay focused on on biosecurity, but I can never have a talk without, you know, focusing on that. There's some producers out there that are struggling in other areas. I'd say that we need to all be mindful of our neighbors and friends and make sure that they're in good shape. This is a good time of year to do that and, and I think that you know, maybe we can enjoy 2025 without too much pain. Um, that's my hope for the new year and I hope, um, that we can get to that uh in in a safe way yeah, very, very good.

Mark Hulsebus / Alltech:

I couldn't agree more with that last comment. Um, certainly, I think as an industry, we've we've all experienced a reprieve from a couple of really tough years, but not everybody is as far along in that recovery as others. So important to remember to be mindful of all of us as an industry and make sure we're taking care of each other. So, sarah, any final comments before we part ways for today.

Sarah Muirhead / Feedstuffs:

No, I just would love to know what pork producers can do to make the most out of these market conditions that are ahead. You mentioned biosecurity. Is there anything else? They really should be focused on Watching out for everyone in the industry, but any practices or things that they should be thinking about at this point? Risk management risk management, risk management.

Christine McCracken / Rabobank:

I think working with your advisor to make sure that you take advantage of markets when they do give you opportunities is always critical. There's a number of companies out there that are able to help you through that process and, and I think you know, a lot of producers are great and have had a great education in risk management. So now's the time right. Things are a little better. It doesn't mean you have to take your foot off the pedal. You really need to. You know, look at all your options, and not just those options, but consider all the options in terms of, you know, taking some of that risk out of the operation is a nice way of thinking about the year ahead.

Sarah Muirhead / Feedstuffs:

Good way to be prepared, yeah.

Mark Hulsebus / Alltech:

Very good, christine. Thanks again for joining us for this episode of Pork Nation Podcast. We sure appreciate it. We're going to have you back and maybe dig deeper into that sovereign debt issue, along with a guest from Raybo at some point. In the meanwhile, happy holidays, have a great New Year's. We look forward to catching up with you again in the near future. For all of us at Pork Nation Podcast, thanks for a wonderful 2024. We appreciate everybody's support and look forward to more of the same in 25.