Worse Than 1998? Why Explosive Exports May Not Even Be Enough to Change the Course of Pork Prices

Pork producers are faced with a tough outlook for 2023. Costs of feed and other goods remain high, yet cash hog prices continue to struggle. Now the question is whether an impressive rebound in exports will be enough to outweigh all the other factors weighing on pork production this year. 

Steve Meyer of Partners for Production Agriculture and Ever.ag says breakeven costs are currently in the $90 range through 2024. He says that compares to a breakeven level of around $63 prior to 2020. 

“That's a fundamental thing that has changed, and we don't think that that's going to get a lot better over the next three or four years,” says Meyer. 

Read More: Pork Exports Continue to Soar in April, Shipments to Mexico Smash Records for 2023

The cost side is what’s creating such strong headwinds for pork producers. 

“We've had a fundamental change in the markets for corn and soybeans in the United States, driven mainly by carbon policy and subsidies paid for biodiesel and those kinds of things that have driven those costs up,” says Meyer. “We also have a short crop in Argentina that's played into that.”

Possible Sow Liquidation 

Still, pork producers will be forced to make some tough decisions this year. With many looking at profits in the red, liquidation could take place. 

“Obviously, we can't keep losing $40 an animal,” says Dermot Hayes, an economist with Iowa State University. “Something has to happen, something has to give. We're not going to stay losing $40 an animal for 10 years. And what I think is going to give, especially some of the larger units, are cutting their sow numbers.”

Read More: Pork Demand: Not a Product Concern, It’s About Affordability

Hayes says anecdotal evidence already suggests larger operations are cutting 3% of their sow numbers, with some independent producers possibly cutting up to 5%. 

“I think the important thing that Dermott said was the market -  and the market includes suppliers and demanders -  won't allow this thing to go forever losing that kind of money,” says Meyer. “So, the market is going to force some of these changes. And I'm like Dermott, we're not asking anybody to make changes, but the market is going to dictate that we put a smaller quantity of product on the market in the future.”

Worse Than 1998?

Hayes says analysis by Lee Schultz at Iowa State University suggests estimated cost and returns for pork producers could be worse than 1998. 

“And I think we're going to have to have some major adjustments in the industry going forward, unless we see some really big shift in demand back to where we were in '21 and '22,” says Meyer. “Again, I think that was driven by a strong exogenous situation of government payments that I don't see is going to happen. Exports will help, some margin shrinking at the retail level will help, but this is a huge increase at about a 35% increase in cost of production from where we were back before 2019."

On the demand side, exports are strong, but domestic demand has also seen a swift change. 

Read More: Surging U.S. Pork Exports in March Reach Highest Levels in Almost Two Years

“On the demand side, we had a huge surge in demand in 2021 and '22, which it looks to me like was driven mainly by stimulus payments, and a lot more money in people's pockets at a time when they didn't have very many places to spend that money. And so that demand has kind of gone away,” says Meyer. 

While hopeful the U.S. can stimulate more demand, he thinks the best bet is on the export side, yet he’s skeptical strong exports will be enough to cover the kinds of costs U.S. pork producers are facing. 

Read More: Discouraging Outlook Ahead but Bright Spots Exist – Part 1

Bright Spot in Strong Export Demand 

Erin Borror, vice president for economist analysis for U.S. Meat Export Federation (USMEF) says April was another strong month for pork exports. Longer-term, she expects porks exports to grow 8% this year. 

“We see the U.S. taking market share from Europe, and it is not China driven,” says Borror. “It's everywhere else. So, we still have strong growth in Latin America. That's been our real bright spot. But then that additional incremental growth is in kind of the Asian markets, so Japan, Korea, Philippines, Malaysia, Taiwan, Australia, we are coming back strong in all of those markets, as well.”

She says Latin America is still strong, which is helping not only boost exports, but also do so at elevated prices. 

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