Hope for Pork Profitability in 2024 is Fading

Tue, 04 Jun 2024 23:55:31 GMT

U.S. pork producers just came off the worst 18 months of negative profit margins in history, even 1998. There was optimism when hog futures rallied to contract highs at around $110 this spring that 2024 would be a more profitable year. However, that hope has faded.

Pork margins started off 2024 in the black, but spring and summer month hog futures have set back $15 to $17 from the contract highs set in mid-April.

Steve Meyer, senior livestock economist, Ever.Ag Insights, says cash and cutouts just stalled the last six weeks, pulling down the lean hog futures and cutting into break evens and profit levels.

“It has gotten progressively worse since March,” he says. “Back in March, the model I have - which is based on historical Iowa State University estimated costs and returns - had about $10 per head, and that’s for probably the low cost 25% of producers which I think the Iowa State model really represents. So, that was about $10 per head back in March. That model last week had minus $4, and it’s mainly been a reduction on the revenue side because of the selloff we’ve seen on the lean hog futures market.”

Meyer says the cost of production has also increased.

“We had about $85 in that cost model back in March and almost $88 now. So, the uncertainty of getting this crop planted has kind of put a little fuel on the corn and soybean markets and cost us some,” he says.

Cash and the Lean Hog Index have also stagnated as pork cutouts have been flat during April and May. Meyer says cutouts usually stage a seasonal rally of $6 to $8 in the spring. So, it’s not tied to hogs supplies but instead soft demand.

“Export demand has still been pretty good, so I don’t think that’s where it is,” Meyer explains. “If we look at the real per capita expenditures, pork real capita expenditures are down almost 5% year to date through March. That tells us that the softness we see is on the consumer side in the United States.”

He’s concerned about the slower demand with supplies ramping up into 4th quarter as weekly hog slaughter pushes over 2.7 million head and squeezes processing capacity.

This could mean additional pressure on cash and wholesale pork values ahead.

It's Never Easy Deciding When to Book Feed, This Year is Extra Challenging

Fri, 03 Jun 2022 19:53:23 GMT

Feed costs are seeing volatile swings, even as hog prices trend higher. While the markets produce major whiplash for producers, margins on the farm show costs are increasing faster than returns.

“We have folks who probably are looking at bottom lines going, ‘wait a minute, why am I not in the black given where hog prices are today?’” says Scott Brown, a livestock economist with the University of Missouri. “It’s just that input side is really tough for them.”

While fuel costs are expected to remain high, and possibly keep climbing, feed costs are still a major unknown.

“I will say, feed costs could look different by the time we get to fall,” says Brown. “It’s both sides. It’s not just that we have a really good crop, the prices could go lower, there’s a lot of demand pull on the bean side, as well, that could make for higher prices, let alone if we put a drought on top of all of this. We’ve never really seen this amount of volatility and the length of the volatility that we’re seeing today.”

The Feed Price Outlook

There are several factors that could put feed prices on either path. The slow start to planting took a turn for the better in the majority of the Corn Belt, but in North Dakota, South Dakota and Minnesota, at least 1 million acres of prevent plant is a possibility. At the same time, May planted corn in Illinois produced strong corn stands, and in turn, Farm Journal agronomist Ken Ferrie thinks record ear counts are on the table in Illinois this year.

As livestock producers weigh what to do about feed costs, Brian Splitt of AgMarket.net says he’s encouraged grain farmers to look at some strong cash sales in the $7.30 to $7.50 range, but with an options strategy.

“One of the problems for the end user that we’re seeing is that even though the board has come down substantially, if you look at those feeding cattle out West, basis gets stronger by 40 cents, and the cash price stays the same. So if a producer or if an end user has been hedged in an account in futures, they’ve experienced a loss in their account, they’re still paying the same for their cash product. So that’s where implementing options strategies to at least kind of keep a cap on things without having the price risk in the account has worked out very well for the end user,” says Splitt.

Hog Prices Tied to Demand

Hog prices have been able to hold strong, despite the loss of exports to China. U.S. Meat Export Federation’s data from March shows the biggest turbulence for pork exports is the dramatic drop in demand from China. Exports during the first quarter of 2022 fell 56% compared to the same time last year.

“On the pork side, we’ve really lost China for the most part and haven’t been able to make up that difference. And so we’re relying more heavily on the consumer now in order to get that demand and sustain that demand,” says Arlan Suderman of StoneX Group. “That’s a real concern that consumers who have the money to spend, but they’re choosing to spend it in different ways and that it’s not necessarily been helping the protein sector.”

We will be uniting together June 6-12 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 #PORKWeek22 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.

PORK Week

Hope for Pork Profitability in 2024 is Fading

It's Never Easy Deciding When to Book Feed, This Year is Extra Challenging

Read More: Economists Urge Pig Farmers to Watch Out for These Threats to Pork Outlook

The Feed Price Outlook

Hog Prices Tied to Demand