Robust exports. A return to profitability? Lower feed costs. Near-record U.S. pork production? The factors affecting the pork outlook are numerous and worthy of a deeper dive with the experts. Farm Journal’s PORK asked five economists to share their thoughts on what’s ahead for the second half of the year.
- Scott Brown, economist at University of Missouri
- Erin Borror, vice president of economic analysis at U.S. Meat Export Federation
- Christine McCracken, executive director, animal protein at Rabobank
- Altin Kalo, head economist at Steiner Consulting Group
- Lee Schulz, economist at Iowa State University
Q. What’s your pork outlook for 2024?
EB: I expect record exports with the U.S. to overtake the combined EU-27 to be the largest pork exporter in the world. In addition, I believe we’ll see near-record U.S. pork production due to productivity growth. Hog and pork prices will climb higher than 2023 due to the rebound in domestic demand plus continued export growth. I expect a return to producer profitability on stronger prices and lower feed costs.
SB: I expect hog prices for the remainder of 2024 to remain above 2023 levels unless domestic demand softens. They should be 4% to 6% above the 2023 levels. 2024 pork production should be about 1.4% above the 2023 level.
AK: My expectation is that pork supply will be higher year over year in the summer and near the same level as a year ago in the fall. Winter is a bit of a tossup, but at this time my expectation is for steady to lower pork supplies next winter. As for pricing, I expect the cutout to trend higher in the next three months, in line with seasonal trends but well below some of the lofty expectations that futures traded in early spring. Fresh pork demand appears to be in good shape, but more cracks are developing for processing items. Hams tend to benefit from robust exports, but bellies rely heavily on foodservice demand and so does pork trim. Exports and softer foodservice demand are expected to present more headwinds for wholesale pork prices in the fall.
CM: We are looking for a good year for packers and producers with both segments profitable for the year. While it is still early in the year, the supply and demand of pork are in balance which is supportive to price and allowing the industry to rebuild balance sheets. Lower feed costs have also made a huge difference for producers.
LS: As the bearer of the Iowa State University Estimated Returns Model for farrow to finish production, I always feel it’s my role here to provide an outlook on profitability. Average annual returns are forecast close to break-even for 2024, based on mid-May estimates. As recently as early January an average annual loss of $18 per head was projected for 2024. While conditions have improved notably, challenges still remain. April was the first profitable month since July of last year and only the second profitable month since August 2022. While seasonally stronger prices may help uphold profits through the summer, losses are currently expected for this fall and winter.
Q. What’s been the biggest surprise in the market so far this year?
EB: Discovering the H5N1 influenza virus in dairy cows.
SB: I think the biggest surprise this year has been the strength of pork demand. This has been for both international and domestic demand. The development of new destinations for U.S. pork will pay dividends for years to come. Domestic demand appears to have started 2024 stronger than the industry experienced in 2023. If economic growth slows, it could take off some of the strength in domestic demand in the second half of 2024.
AK: For all the talk of loss of retail demand due to Proposition 12, fresh pork market has proved to be far more resilient.
CM: The continued strength in exports continues to surprise me given the strength of the dollar and more challenging consumer trends globally. Higher-cost pork from Europe has provided a nice tailwind for the U.S., as has the ongoing strength in the Mexican peso.
LS: Prices. I rely on lean hog futures to forecast prices. Futures markets are often considered efficient markets in the price discovery process because they account for all public and nonpublic information in determining an equilibrium price in the market. That is, the price quoted for hogs on the futures market is thought to be an accurate measure of the actual price, either current or future. Therefore, if you would like a good predictor of what hog prices will be in the first half of May, the May lean hog futures price quote may be the best, and easiest, price forecast. However, so far in 2024, futures have not predicted prices very well. For example, on Jan. 2, the May 2024 CME lean hog futures contract settled at $79.850. In the span of 19 trading days, prices rocketed up to $89.175 on January 30, then increased to $98.775 by April 9 before settling lower at $91.825 on May 14. Deferred contracts have showed a similar pattern but at elevated prices for summer contracts. What has made these overall price increases even more surprising is that they have come with pork production being up from a year ago and larger than expected.
Q. What do producers need to keep in mind going into the second half of the year?
EB: Export customers are increasingly looking to U.S. pork, including to offset the lack of European product. Although we expect EU production to rebound somewhat later this year, it will remain at historically low levels. Brazil is our rising competitor, and they are going for expanded market access, including through the application to WOAH for additional states to be declared FMD-free without vaccination. This could happen as soon as May 2025. USMEF sees U.S. pork exports remaining strong in the second half, due to continued retaking of market share from the EU in Asia; and from continued consumption growth in Latin America. China’s import demand is expected to remain tepid this year. U.S. pork still faces 25% retaliatory duty, but China remains the largest destination for U.S. pork variety meat. The U.S. Federal Reserve and whether they cut interest rates is something to keep in mind. Federal Reserve policy will continue to impact the U.S. dollar, and especially the strength of the dollar against the Japanese yen.
SB: Corn prices were above $6 per bushel in the spring of 2023. They steadily fell from those high levels for most of the remainder of last year. By early 2024, corn prices fell below $4 per bushel for a short time. Prices have risen some since then but remain below $5 per bushel. Weather will be critical to where corn prices will go for the rest of 2024. Dry weather could push corn prices much higher, while average or better weather could push corn prices lower than today’s levels. Producers should have a plan for how best to manage feed costs in the second half of 2024.
AK: Look at the big picture. Slaughter data is reported daily/weekly and it gives you a (sometimes false) sense that you have a good handle on supply. But exports matter, imports matter, cold storage inventories matter. Hog supplies are always higher in the fall and there will be less processing capacity. Packer margins are also getting squeezed so there will be more pushback on price.
CM: Mexico makes up roughly one-third of U.S. pork exports and have become an increasingly important market. With the Mexican election in June, and a change in administration, there is some risk that the market could soften in the second half of the year. With nearly 10% of all U.S. pork sold in Mexico, it is critical for the industry to consider both the opportunities and the risks of development of this important market.
LS: Producers have been on defense for much of the past two years due to adverse conditions. They should be thinking about how and when they can go on offense to take advantage of current and future market opportunities. Do not wait for the market to come to you. Establish price floors. Insure prices or margins. Set several target prices to allow for changing market trends.
Q. What can producers do to set themselves up for success this year?
EB: Keep the focus on pork quality and consumer trust as well as biosecurity. I encourage you to further explore “sustainability” opportunities. We appreciate the industry’s efforts to adopt enhanced traceability requirements and realize that it will take time for regulatory implementation. In the interim, if producers are not already enrolled in voluntary traceability programs, we encourage them to do so, as the foreign animal disease risk remains high and prevention and preparedness remain critical.
SB: Hog producers should consider managing the downside risk to profitability for the remainder of this year. There have been opportunities to provide some level of profitability. That could change quickly with dry weather or reduced pork demand. Reducing downside risk through risk management tools may be the most important thing producers can do this year.
AK: Take advantage of opportunities when they present themselves. I know that’s easier said than done, which is why it helps to be consistent in your risk management strategies. October futures traded in the mid to high 80s during March. This would allow producers to hit breakevens for the time of year with the biggest potential for losses. Take advantage of the Livestock Risk Protection program.
CM: Aside from managing costs, a continued focus on biosecurity should top this list. With the recent increase in porcine reproductive and respiratory syndrome (PRRS) and the ongoing risk of foreign animal disease, we believe limiting loss on the farm is a key differentiator in the financial success (or failure) of top operators.
LS: Think outside the box for ways to manage costs. According to the Iowa State University Estimated Returns Model for farrow-to-finish production, costs are forecast to decrease 10% in 2024 compared to 2023. While feed costs are expected to be down 20%, pork producers use numerous other inputs and services and most of those costs are up in 2024. Inflation may be going down, but those pre-pandemic prices we remember, and got accustomed to for much of the last decade, are likely gone forever. Some strategies, like stocking up on inputs that are hypersensitive to inflation and entering into longer-term contracts for others, can help ease the effects of rising input prices. On the revenue side, I encourage producers to make use of available resources to help guide decision making. One such resource is the USDA Swine Contract Library which is intended to aid in price discovery by allowing producers to investigate what contract terms and provisions packers offer. Producers can use this information as they negotiate pricing arrangements with their packer customers.
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