We’ve partnered up with our risk management company, J.S. Ferraro & Co. to publish our inaugural edition of The Monthly Red Meat Outlook. Our resident expert, Dr. Rob Murphy - EVP Research & Analysis, has assessed recent market events (e.g. trade & tariffs, ASF, and hurricane Florence) in the October outlook for both the Cattle & Beef and Hogs & Pork markets.

1. US commercial pork production
will be up 3% this year
The pork industry has been in a strong expansion phase since 2015
when the industry recovered from the effects of reduced production
due to the PED outbreak. The industry added three large packing
plants late last year and hog supplies have grown to help fill that
increased capacity. Another large plant is scheduled to come on line
early in 2019. Figure 1 provides a look at annual pork production
with forecasts for 2018-19 and the strong growth trend is evident.
What this means is that since 2014 the industry has had to find a
home for between 3-4% more pork each year. Almost all of that extra
production has been offloaded to export markets and that allowed
domestic pork pricing to remain within historical norms.
INTERNATIONAL PORK DEMAND
President Trump’s trade war has arisen as a threat to US pork ex-
ports. Trump pulled the US out of Trans-Pacific Partnership (TPP)
negotiations and slapped metal tariffs on Mexico that prompted a
20% retaliatory tariff on US pork. Mexico is the largest destination
for US pork. Further, Trump has placed tariffs on a wide range of
products from China, and the Chinese responded with 50% tariffs
on US pork. The China tariffs haven’t had a big impact so far be-
cause pork pricing in China is low and their need for US exports has
been minimal. However, China, with a population five times larger
than the US, is the growth market of the future and as long as these
tariffs stay in place it is unlikely that the US pork industry will be a
big player in supplying that market. Figure 2 provides a look at US
exports since 2000. An important wild-card in the global pork picture
is the emergence of African Swine Fever (ASF) in China. This disease
spreads easily and is usually fatal to swine that become infected.
China is home to nearly half of all the pigs on the planet and if the
ASF outbreak becomes severe, there is a risk that millions of hogs in
China will have to be euthanized and that would likely cause Chinese
importers to turn to other countries to make up for pork lost to the
disease. Europe is also managing their own ASF outbreak and the
impact on the 2 million hogs that reside there, which is roughly 25%
of the world hog population.
While the information contained in this report has been obtained from sources believed to be reliable, JSF Group Inc. and its subsidiaries (i.e. Retail Ready Foods Inc., J.S. Ferraro & Company) disclaims all warranties as to the ac-
curacy, completeness or adequacy of such information. The information is not a recommendation to trade nor investment research. User assumes sole responsibility for the use it makes of this information to achieve his/her intended
results. No Part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of JSF Group Inc. or its subsidiary, J.S. Ferraro & Company.
Figure 1: Commodity Pork Production
RED MEAT OUTLOOK: HOGS & PORK
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Figure 2: Total Pork Exports

2. As of today, we are working under the assumption that Chinese
officials will get ASF under control, but pork users must keep in mind
that there is a chance that the outbreak might expand rapidly and
thus cause global pork prices to rise sharply.
US DOMESTIC PORK SUPPLY
We project that US commercial pork production will be up 3% this
year while exports look like they may be up a similar amount. On a
per capita basis, Americans will consume almost 2% more pork in
2018. That has been a concern at a time when beef and poultry pro-
duction is also expanding. But, the industry has already invested in
expansion and so there’s little doubt that an abundance of pork will
be produced for the foreseeable future. Hog slaughter, and thus pork
production, is seasonal with the largest production typically coming
in the fourth quarter. As we approach Q4, the industry is bracing
for big production once again. The recent hurricane in the Carolinas
forced several packing plants to suspend operations and that
short-term disruption reduced production and caused price levels in
the pork complex to rise. But now those plants have come back online
and we are regularly seeing daily hog kills in the area of 470,000 head
per day. Kills during October are expected to exceed 2.5 million head
per week and are likely to climb to 2.6 million head per week at their
peak in late November. That seasonal growth in production is expect-
ed to pressure product prices, but that is normal for the last quarter of
the year.
US DOMESTIC PORK DEMAND
With big production coming down the pipeline, demand becomes
particularly important. Pork demand has had some rough spots in
2018 and there is always the risk that demand could fail to live up to
expectations in Q4. The first soft spot in demand came in late March
and April, when the pork cutout fell to the mid $60 area and cash
hogs into the low $50s. Those price levels were well below what is
normally experienced in early spring. The second soft spot material-
ized in early August and just happened to coincide with a transitory
bulge in hog supplies. That incident drove the cutout down to the
mid $60s and hog prices into the mid $40s. Demand has improved
since then, but after those two events, the market remains quite ner-
vous heading into a period of the year when production will be at its
highest. Currently, the cutout is trading around $80, but most of that
strength is probably related to the hurricane-related supply reduction
that is now behind us and kills have ramped back up. We expect
price levels to retreat in the weeks ahead.
CONCLUSION
Even good demand cannot absorb the large Q4 production increases
without some price concession. The decline is likely to be gradual,
but by the end of November the cutout could be trading at $70 or
below. Loins, butts and hams are at most risk of price declines while
bellies, ribs and picnics may do a better job of holding near current
price levels. Our advice to buyers is to delay purchases as long as
possible on most pork items since price levels are expected to work
lower as kills increase during October and November. Bellies and
bacon are the exception, and for those items there is additional upside
risk so taking some coverage at today’s levels might not be a bad
idea. For those looking to put product in the freezer, the most advan-
tageous price levels are likely to be found between mid-November
and early December when kills are near their tops. That will likely be
the optimal time to move product into cold storage in anticipation of
higher pork pricing in the first half of 2019.
Cash hogs are likely to follow the pork market lower in Q4. Pork
packing margins are currently near $25/hd and will likely remain
in the low to mid $20s for most of Q4. Packers will have substantial
leverage over producers during the fourth quarter due to large hog
supplies. We currently project the Lean Hog Index to move from its
current value in the mid $60s down to the mid $50s by late
November. After that, hog supplies should slowly tighten and that
might allow the index to get back into the $57-59 range in mid-De-
cember when the December futures expire. Table 1 provides our
forecasts for the next six weeks for all of the pork primals and the
Lean Hog Index.
While the information contained in this report has been obtained from sources believed to be reliable, JSF Group Inc. and its subsidiaries (i.e. Retail Ready Foods Inc., J.S. Ferraro & Company) disclaims all warranties as to the
accuracy, completeness or adequacy of such information. The information is not a recommendation to trade nor investment research. User assumes sole responsibility for the use it makes of this information to achieve his/her
intended results. No Part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of JSF Group Inc. or its subsidiary, J.S. Ferraro & Company. : J.S.
Ferraro & Company and Retail Ready Foods Inc. are part of the JSF Group of companies.
RED MEAT OUTLOOK: HOGS & PORK
THE MONTHLY OCTOBER 1, 2018
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© Copyright JSF Group Inc. All Rights Reserved, 2018. 2
Table 1: JSF Cattle & Beef Price Forecasts
Dr. Rob Murphy is an agricultural economist and business leader with over
27 years in the industry. He has a wealth of experience in the North
American meat and livestock industries studying, analyzing and predicting
market movements.
DR. ROB MURPHY BS, MS, PhD Agri Economics,
Executive Vice President, Research & Analysis,
J.S. Ferraro & Company
E: Rob.Murphy@jsferraro.com
Table 1: JSF Cattle & Beef Price Forecasts
Table 1: JSF Hog & Pork Price Forecasts