Pork Producers Face a Bleak Profitability Picture
Although anything is possible given the volatility in the markets today, University of Missouri economist Scott Brown says it will take a combination of lower corn prices and stronger U.S. pork demand than what we’ve seen lately to result in profitability for pork producers in 2023.
“Both of those are certainly possible, but having both happen is not likely in my opinion,” Brown says.
Admittedly the profitability picture has not been great through mid-year, says Brian Earnest, lead protein industry analyst at CoBank. But he says it’s not because there are dollars missing in the value chain.
“Higher retail prices suggest that on a per-pound basis, there is ample opportunity for producers to pull dollars from the system, and lower feed prices should ease some of the input burden. But the market forces remain unfavorable,” Earnest says. “It is likely that despite eroding feed prices, many hog producers will struggle to break even overall.”
The Demand Dilemma
High prices at the grocery store and foodservice will eventually ease, but Altin Kalo, head economist at Steiner Consulting Group, says they will not go away that quickly.
“Pork supply availability is comparable to previous years and yet we are trying to push that supply through a much smaller ‘pipe’ due to the higher prices,” Kalo says. “Normally summer is when producers make money. Those with no hedges are deep in the red right now. With all the issues created by Prop 12 and the impact this may have on commodity product in the second half, it will be tough for hog prices to gain traction.”
A Look at the Stats
• According to the Iowa State University model for farrow-to-finish production, costs were estimated to have increased 50% or $32/carcass cwt in 2022 compared to 2020, points out Lee Schulz, Iowa State University economist. This translates into an increase of over $65 per head in just two years.
• Costs in 2023 are forecasted to remain at elevated levels.
• Returns to farrow-to-finish production posted a sharp loss of $57.97/head for April 2023 according to the Iowa State University model. That’s a stark change from the same time last year that saw a $13.95/head profit. April 2023 had the largest monthly loss in 25 years. In December 1998, estimated losses were $63.68/head.
• It’s also not just pork producers losing money. Pork carcass cutout values have stagnated at around $80/cwt so far in 2023. This is 20% lower than during the same period in 2022. Even with lower hog prices being paid, pork packer margins are notably struggling because of low wholesale pork values, Schulz says.
“I often repeat the saying that, even in the ‘good years’ some producers are losing money and even in the ‘bad years’ some producers are making money. But, a qualifier may be needed for this ‘really bad year’ for pork producers, that is, some producers may be losing less money,” Schulz says.
Cost of production is certainly part of this, but price risk management is also key, Schulz says.
“Producers that took advantage of insurance programs and risk management tools will be in a better position, but even that is no guarantee. The industry is experiencing one of the toughest years in over a decade. The reasons for this are largely outside the control of most producers and reflect the high costs of production, including feed and labor,” says Rabobank executive director and protein analyst Christine McCracken.
Although profitability might not be a reality for most producers this year, she says if producers carefully manage costs to minimize losses, they should be able to make it through to better times.
We will be uniting together June 5-11 for PORK Week across all of our Farm Journal platforms to elevate the important role the pork industry plays in feeding the world. Share your stories and post photos on social media using #PORKWeek23 to help us honor the pork industry. From “AgDay TV” to “AgriTalk” to “U.S. Farm Report” to PorkBusiness.com and everything in between, tune in and join us as we acknowledge the most noble profession there is: feeding people.
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