Source: AgUpdate.com
High production costs and decreasing demand likely will translate into a rough year for pork producers.
Several other factors will also take their toll on profits, said Steve Meyer, lead economist for Partners for Production Agriculture based in Ames, Iowa. He spoke to producers at the World Pork Expo here June 7.
“Production costs are likely not going back. I’d be surprised to see anything starting with a 7,” Meyer said.
Hog numbers will also be an issue. Meyer said packing capacity this fall “is going to be snug.”
Proposition 12 will go into effect in California on July 2, meaning pork sold there must be compliant with the new guidelines. He said roughly 5 to 8% of pork previously sold into that market will have to find another destination.
Meyer said other potentially negative factors include the continuing threat of African swine fever and issues with price discovery.
All of this could contribute to losses similar to what the pork industry experienced in 1998.
“We had a good 2021, a bad 2022 and a much worse 2023,” Meyer said. “The problem isn’t prices. It’s production costs that have exploded.”
Feed costs will continue to be a concern. Meyer said that while the crop was planted quickly, some of it is not off to a good start as dry conditions continue to torment parts of the country.
“You don’t make a crop by the planting date,” he said. “Corn needs rain in July and beans need rain in August.”
Meyer said increasing the soybean crush should be a positive sign for pork producers as it creates more feed.
He estimates a break-even price of $97.19 for farrow- to-finish operations in 2023, with that figure falling to $90.80 in 2024.
Meyer said the market will continue to be demand-driven. Part of that is driven by the price of competing meats, as well as being tied to consumer income.
“That income went up thanks to the stimulus checks from the federal government during the pandemic,” he said. “Now income is down, and disposable income has dropped.”
Meyer added that many consumers have had to take money out of their savings accounts because of the higher cost of goods and services.
“Consumer sentiment took a nosedive,” he said, adding there are signs that may be recovering.
Consumers continue to deal with higher retail pork prices, said Lee Schulz, Extension livestock marketing economist with Iowa State University. He said from January 2020 to May 2022, retail prices grew by 27%,
He estimates 2023 lean hog prices to average $78 per hundredweight. That breaks down to $78 in the second quarter, $83 in the third quarter, and $75 in the fourth quarter.
Prices should average $79 in the first quarter of 2024.
Schulz estimates losses of $39 per head in 2023, and just over $15 per head in 2024.
“2023 could nominally be our worst year ever,” he said.
Packers are also losing money, Schulz said. Those margins turned red late in 2022.
Over the short-term, he expects the sow herd to decrease, adding that number is still up in the air. Growth will be slow for both domestic and international demand.
Meyer said that over the next three to five years, efforts will continue to keep out foreign animal diseases. Labor availability will continue to be an issue for both producers and packers, with the industry relying more on mechanized technology.
