Good News for the U.S. Pork Industry: It Can’t Be Worse in 2024

Industry experts Scott Brown, Altin Kalo, Christine McCracken, Joe Kerns and Lee Schulz provide perspective on the outlook for pig farmers heading into 2024.

If there’s any “good” news for 2024, Partners for Production Agriculture President Joe Kerns says it’s that it can’t be worse than 2023. Although economists expect 2024 to be another challenging year, some believe it will be a turning point for the U.S. pork industry.

“Remember, the point of maximum financial opportunity is at a market bottom, when prices (or profits) are lowest. The point of maximum financial risk is at the market peak, when prices (or profits) are highest,” says Lee Schulz, associate professor and extension economist at Iowa State University.

In addition to Schulz and Kerns, leading industry experts Scott Brown, economist at the University of Missouri; Altin Kalo, chief economist at Steiner Consulting Group; and Christine McCracken, executive director animal protein at Rabobank, provide perspective on the outlook for pig farmers heading into 2024.

What do you anticipate as the biggest obstacles regarding profitability in 2024?

SB: The demand for pork appears to be one of the most significant issues affecting profitability in 2024. This obstacle primarily focuses on domestic demand, but international demand for U.S. pork could also be important to the demand discussion. The other obstacle is the continued strong spread from the wholesale to retail levels.

AK: Demand remains the biggest challenge in our view. The obstacles created by Proposition 12 in California and Question 3 in Massachusetts have not gone away and have the potential to negatively impact sales in 2024. Our understanding is that the supply of compliant pork continues to fall short of potential sales. Export demand is also problematic with more competition from Brazil and punishing tariffs in China. The slowdown in global economic growth and higher odds of recession further cloud the profitability outlook.

JK: We still have a cost structure that is completely out of correlation with our revenue. Until we get meaningful relaxation in the price of inputs, we are going to struggle to make much progress on the path to profitability. Summer hogs trading in the mid-90s are higher than normal for that timeframe and still represent levels that are barely above breakeven. It is not about the revenue. Our biggest problem is the cost component. We have had a welcome fade in the price of corn, but more help is needed. South America has an opportunity to turn out a huge crop if the rains in the forecast materialize. We will need the world’s agronomic production to hit on all cylinders to find meaningful relief that can be substantiated.

CM: Ample domestic North American pork production and continued growth in poultry supplies in 2024, will likely weigh on pork prices and returns for U.S. producers in the first half of 2024. Herd reductions have been slow and will continue to limit the upside in prices. Global markets are also well supplied, despite the sharp decline in European production, limiting incremental export market gains. Pork supplies should rebalance by mid-year and help strengthen markets by second half, but the recovery is likely to slow given relatively soft demand. This tepid recovery in pork, along with the lagged impact of higher rates and continued cost pressure will likely limit the financial upside in 2024.

LS: Headwinds to profitability are coming from several directions and the situation may best be described as continuation of a cost-price squeeze. On average, 2023 production costs were 2% higher than in 2022, 21% higher than in 2021, and 53% higher than in 2020 according to the Iowa State University model for farrow to finish production. Costs in 2024 are forecasted to decrease only 8% from 2023’s record level. A decrease in pork production, all other things unchanged, would cause hog prices to rise. However, significant investment in the pork industry during the last decade has brought considerable asset fixity and asset specificity. Both delay production cuts in response to losses. Even if there are further reductions in the breeding herd this could be offset by improvements in productivity. Pigs saved per litter were up 3.3% in March to May 2023 compared to the same quarter in 2022. This was topped by the 4.3% increase in June to August 2023 litter rates compared to a year earlier. An increase in demand, all other things unchanged, would also cause prices to rise. However, the third quarter 2023 domestic retail pork demand index was down notably from a year ago. Pork demand has waned the last five quarters. With domestic per capita consumption projected flat to slightly higher in 2024, U.S. consumers will need to be willing and able to pay higher real (i.e., inflation adjusted) prices for the industry to see an increase in demand. Strength in U.S. pork exports in 2023 has been a positive development and greater than expected growth in 2024 exports would inject some optimism into the price outlook.

What are the drivers of change for pork producers in the year ahead?

SB: Relatively small shifts in either supply or demand for pork could result in higher or lower hog prices. The driver of change for producers is how to deal with increasing volatile pork prices that result from small shifts in supply or demand. Feed costs could provide some financial relief for hog producers in 2024. Lower feed costs will depend heavily on weather conditions in corn-growing regions around the world in the coming year. Many current projections show corn prices ranging from $4.00 to $4.50 per bushel in 2024.

AK: Feed costs are expected to be contained, but nothing is guaranteed, especially as Brazil is now the top corn exporter in the world. African swine fever (ASF) has not gone away. China and countries in Southeast Asia have learned to live with it and major European pork producers (Denmark, Spain, France) have managed to keep it at bay. But it’s knocking on their door. This has the potential to significantly impact demand for U.S. pork. The global economy is slowing down as higher interest rates start to bite. About two-thirds of the growth in U.S. pork production the last two decades is due to higher exports. Exports have been and will continue to be a key driver for change. Often producers tend to focus on supply, but demand, both in domestic and particularly export markets, has the potential to be a significant driver.

JK: Let’s start with one of the catalysts that brought us here that is not going away: genetic potential. You have to be proud of our industry with the ability to get more output (market hogs) against a static sow herd. Improvements in feed conversion and average daily gain in the finisher have also been notable. We are the poster child for the Environmental, Social and Governance (ESG) movement, whether it was our intention or not. This phenomenon has led to an oversupply of animals relative to demand if profits are the goal. Our productivity trends are not going away. We simply do not need as many sows as we once did to produce a given amount of market animals. The first driver will be the attrition of the sow herd as the economic forces dictate our behavior. The next driver will be an uptick in export demand on account of contraction across the globe. The third driver could be the compression in grain prices if we oversupply the grain market with product. I think all of these three items are likely – two are welcome, the other one hurts.

CM: Regulation and new technologies are likely to play a bigger role for producers. The most notable change will follow the full enforcement of Proposition 12 in California in January. While the details of implementation are clear in theory, they remain slightly less obvious in practice. Despite best efforts, potential market disruption is still possible if the new housing rules are strongly enforced as the supply chain works through the transition. Potential fallout from our trade partners, unhappy with the new law, could also create unwanted challenges. Line speeds, a potential government shutdown, the farm bill and additional sow housing challenges also hang over the industry in the next calendar year. 2024 should be a breakthrough year for technology, however, with gene editing expected to gain market approval. While not an immediate solution, a disease resistant pig would mark a significant change in current production alternatives over time.

LS: My customary list includes domestic and export demand, any changes in the global epidemiological conditions of ASF, the economy, state and national policy debates, productivity/disease impacts, and weather/grain markets. To add to this, advancements in machine learning and artificial intelligence are coming at us, regardless of if we like, and are ready for it, or not. Short-term pressures often temper investments in innovations that have a longer-term payoff. I encourage us to embrace innovation.

What is your 2024 outlook for the pork industry?

SB: My current outlook for the pork industry suggests that 2024 will be another challenging year for the pork industry. Demand for pork in 2024 is expected to remain similar to what the industry experienced in 2023 and not return to the stronger demand observed in 2021 and 2022. In 2024, pork production is anticipated to expand as productivity per sow grows, even with a smaller breeding herd.

AK: From a supply perspective, we expect very modest growth, if anything at all. It has been a very unprofitable year for producers, and usually there is a lag in terms of the supply response. We think the breeding herd on December 1 will be about 1.3% to 1.5% lower than the previous year. Productivity gains have offset the reduction in the breeding herd so far. If that persists, then we are probably too conservative in our supply projections. Increased competition from chicken at retail and a slowdown in economic activity is problematic from a demand perspective. The post-COVID demand bump in 2021-22 all but disappeared in 2023 and is unlikely to be repeated in 2024. But we also do not think that the wholesale price collapse we saw in the spring of 2023 is a good indication either. Our expectation is for wholesale prices to be higher than they were in 2023, but the forecasted wholesale prices are not expected to be robust enough to support expansion. Despite lower grain prices, margins are expected to be thin and inefficient. Producers will have an uphill climb.

JK: We simply do not have the equity to experience another year like this year. The other side that falls hand in hand with the pain that we are experiencing is that it is working – supplies of pigs throughout the world are falling given our lack of profitability as a global industry. The pain is not confined to North America. Asia and Europe are also downsizing their herds. The decline in Europe is probably the most notable item for hope in 2024 for the U.S. EU production will be down a solid 8% in 2023 with a similar decline expected for 2024. This, essentially, forfeits the leadership in the export market to the U.S. and Canada. Canada will be better positioned than the U.S. for any demand that may come from China (doubtful of anything meaningful), while the U.S. should become the world’s No. 1 exporter in 2024. Our current supply of market-ready pigs will likely keep a lid on prices though the spring. The last half of 2024 is where the hope for better markets resides.

CM: We are optimistic that 2024 will be a turning point for the industry, but it will also be another challenging year. Current losses are simply unsustainable and will force the industry to adjust production, unfortunately at a considerable personal and financial expense. While there has been some moderation in feed costs, current markets do not cover historically high costs of production. We expect producers to face losses through the spring and supply adjustments to continue throughout 2024.The reality is that consolidation has trailed expectations, as cash reserves have carried the industry through 2023 and delayed liquidation. While domestic and export markets are steady, consumers remain financially stretched and a strong recovery is likely out of reach for 2024.

LS: Returns to farrow-to-finish production are projected to average a loss of $32 per head in 2023 according to the Iowa State University Estimated Livestock Returns model. An average annual loss of $21 per head is forecasted for 2024. If realized, 2023 and 2024 will go down as the worst two-year stretch for profitability in hog production ever, even eclipsing the infamous losses in 1998 and 1999. But profits will eventually return to the pork industry.