Pork Industry Outlook
Coming off from one of the worst years for profitability in the hog industry, with significant losses across farms in 2023, this year is showing room for improved grower margins, according to Kyle Hurley, vice president of agribusiness lending for GreenStone Farm Credit Services.
While labor, transportation, insurance and interest rates continue to put stress on growers, lower feed costs have provided some relief
“Average cash price last year was close to $60 per live hundredweight – which isn't a bad historical price – but feed costs were much higher than normal,” explains Hurley about the downturn in 2023. “Feed expenses are lower this year and growers are continually evaluating other management opportunities to save money. But higher interest rates on operating loans means some growers are still seeing additional losses, while other farms are fairing better. Producer margins are highly variable.”
U.S. pork exports were up 6% year-over-year last year and are projected to be up 3% year-over-year in 2024, helping to keep prices and margins stable, he says.
However, domestic demand has been relatively flat. “The National Pork Board has been working diligently on new customer segmentation strategies, new campaigns, looking to improve domestic demand,” he adds.
A lot of younger consumers, he noted, are looking for convenience. “We now have some pre-seasoned pork products ready to cook, and we’re also seeing smaller portion sizing,” he adds. “The impetus is on improving taste and quality of pork products, and getting folks educated on how to properly prepare pork and the various options they have for it. Bacon as a condiment is great, but we’re looking to expand into more retail and food service pork uses.”
As retail beef prices continue to climb in 2024 because of tight supplies, Dennis Smith, who writes for National Hog Farmer, sees an opportunity. “It now seems highly likely that consumers are moving away from beef and toward pork and chicken to stretch their food dollars,” he writes. “This trend has been confirmed by several food companies recently. Much cheaper pork and chicken are in an excellent position to pick up new demand in this current environment.”
Downsizing Impact
According to USDA’s June Hogs and Pigs Report, the U.S. is down about 200,000 sows, or about 3% of what the herd was a year ago. “Since 2020 we've seen nearly half a million sows come out of the U.S. sow herd,” Hurley says. “But that doesn’t translate into fewer pigs marketed per year because we’ve increased productivity from 11 pigs per litter to 11.5 saved per litter, according to the USDA’s June report. Some of that comes from genetic improvements, but also management, nutrition and the improving overall health of the U.S. sow herd. So, it really hasn’t put much of a dent in U.S. pork production. That said, there are some sow barns that are not full. Growers should be managing through this period of lower margins before considering adding more sows.”
Hurley expects the industry to finish out quarter three of this calendar year showing year-to-date profits, or at worst, shallow losses. “But the question will be, what opportunity does the fourth quarter bring as the breakeven price falls, but as hog prices historically fall as well?” he asks.
It helps that the downturn follows healthy profitability during 2021 and most of 2022. “Balance sheets improved during that time with significant working capital built, but a lot of that was given away in 2023 and into early ’24,” he says.
His crystal ball is a little cloudy for the future, he admits, but success will hinge on proactively managing through this period. “Producers will need to be as productive and cost efficient as possible by limiting their capital expenditures, understanding their full cost of production and break-even price points, increasing use of risk management tools as it relates to hedging on prices and inputs, and practicing good biosecurity. As lenders, we’re working with them to preserve working capital, structure new debt conservatively, and helping them look at potentially rebalancing or refinancing some debt. Some farms need to recapitalize their balance sheet by bringing in outside equity or through the sale of non-core assets.”
Disease Risk
One of the constant challenges is sow herd health, as producers strive to thwart off threats of Porcine Reproductive and Respiratory Syndrome (PRRS) and Porcine Epidemic Diarrhea Virus (PEDv).
Disease pressures can cause significant production issues for the industry and while H5N1 high pathogen Avian influenza has not jumped from cattle or poultry to hogs, producers are practicing high biosecurity measures as a precaution, according to Mary Kelpinski, chief executive officer of Michigan Pork Producers Association.
MPPA continues to fund the National Bank of vaccines, she noted, and a vaccine for foot and mouth disease is now available, which Kelpinski urges producers to pursue.
Foreign animal diseases continue to be a concern for growers. “The industry is on high alert to prevent diseases like ASF, African swine fever, from hitting our shore, which would have devastating effects on exports, prices and margins,” Hurley adds.
The Beagle Brigade, which uses dogs at the airports, are specially trained and available to sniff out for illegal products coming into this country, especially pork products, Kelpinski noted.
