Uncertainty Overhangs U.S. Hog and Pork Markets as the Fourth Quarter Begins

October kicked off the fourth quarter of the year—the quarter that typically sees the year’s
largest slaughter numbers and the lowest hog prices—with the factors that have thus far
defined 2023 remaining largely unchanged. Pork producers continue to face macroeconomic turbulence (i.e., high interest rates in particular) and market uncertainty caused by imposition, in some States, of hog production regulations that could affect nationwide methods of pork production. While these issues are compelling, probably the most serious problem that hog producers have faced all year has been generally weak consumer demand for their product. Weak consumer pork demand has been reflected in low hog prices, which in turn have translated into below break-even price levels for most producers for much of the year.

According to the last Quarterly Hogs and Pigs report in September, rather than immediate and significant breeding-herd reduction, producers appear to have opted so far to limit losses by marketing hogs at year-over-year lower weights. The figure below shows monthly dressed weights for 2022 compared to weights through this September, with an estimate for October 2023. Dressed weights through September have so far averaged 2.4 pounds below those in 2022. Hog average dressed weights are likely to remain below year-earlier levels until the market signals consumer willingness—with higher prices—to compensate producers for the costs of putting additional weight on hogs.

Demand for Pork Has Likely Declined

Thus far in 2023, monthly values of the wholesale pork carcass cutout have been below same- month values of a year earlier. Through September 2023, the cutout value has averaged $90.76, almost 16 percent lower than the same-month average in 2022.

Plotting 2022 and 2023 January–September values of the cutout against pork production3 and assuming that the trendlines approximate reduced-form demand functions for wholesale pork, the scatter gram shows some evidence of a downward demand shift from 2022 to 2023.

Wholesale pork carcass cutout values versus pork production, January−September 2022 and 2023

Meyer4 argues that real per capita expenditure contains the components of a demand index, with changes in expenditure indicating changes in demand. Calculating real per capita pork expenditure quarterly for 2019 and 2021 through September 20235 yields the figure below.

3 Monthly pork production values are adjusted for unequal slaughter-day numbers.
4 Meyer, Steve. “Understanding the Measures of Pork Demand.” National Hog Farmer, May 21, 2009.
5 Quarterly real per capita pork expenditure= (quarterly retail per capita pork disappearance x ERS pork
composite retail price) \ ((quarterly average CPI) \ (average 2014 CPI)).

The figure shows the 2019–September 2023 path of quarterly real per capita retail pork
expenditures. What is notable about the calculated series is the level that real retail pork
expenditures achieved during periods of covid-related confinements, closures of all but essential businesses (ie, grocery stores, in particular, in many parts of the country) between, roughly, the third quarter of 2021 and the late quarters of 2022. It is possible that the expenditures reflect Government transfer payments and other covid-related relief programs on a narrow range of available consumption goods. On the other hand, the lower expenditures observed in the retail market so far this year may reflect a re-equilibrating process toward more familiar pre-covid pork expenditure patterns. In this figure, such patterns could be represented by quarters 1–4 of 2019.

Hog Prices Adjusted Downward Through First-Half 2024

Estimated federally inspected (FI) hog slaughter in October was fractionally lower than a year ago after adjusting for the additional slaughter day this year. Estimated average FI dressed weights were about 3 pounds lower than last year, thus dropping October-estimated FI pork production 1.7 percent below production in October 2022. October prices of live equivalent 51-52 percent lean hogs averaged $58.08 per cwt, 14.3 percent below prices in October 2022. Fractionally lower hog slaughter numbers, accompanied by year-over-year lower hog prices, point to weakening demand for hogs.

On the other hand, packer margins in October (weeks 40-43 in the figure below) exceeded
those same weeks of October last year. While prices of both hogs and pork declined year over year in weeks 40-43 of this year, hog prices fell almost 14 percent during those weeks, while the cutout fell only 10.4 percent. The combination of prices yielded a positive gross margin, ahead of last year for pork processors.

The fourth-quarter 2023 commercial pork production forecast is lowered about 100 million
pounds to 7.1 billion pounds—about 2 percent greater than production in the same period a
year ago—from 7.2 billion pounds forecast last month. The lower production forecast in the
latest WASDE derives from assumptions for continued lower average dressed weights. Fourth- quarter prices for live equivalent 51-52 percent lean hogs are expected to average $55 per cwt, more than 13 percent below a year earlier. For the first half of 2024, prices are expected to average $57 per cwt in the first quarter—up 4 percent from first-quarter prices this year—and second-quarter hog prices are expected to average $63 per cwt, more than 11 percent higher than prices averaged in the second quarter this year. The hog price forecast for the third quarter of 2024 remains unchanged at $65 per cwt, more than 6 percent below third-quarter hog prices this year.

September Pork Exports Down Almost 1 Percent

U.S. pork exports in September were 512 million pounds, 0.8 percent below a year ago. The table below of the 10 largest export destinations for U.S. pork in September shows that shipments to Western Hemisphere nations—Mexico, Canada, the Dominican Republic, and Honduras—supported U.S. exports, slowing the negative slide.

With the inclusion of September shipments, third-quarter U.S. exports totaled 1.54 billion
pounds, 1.9 percent higher than a year ago. Taking into account the somewhat slower
September shipments, the fourth-quarter 2023 forecast is lowered by 10 million pounds to 1.74 billion pounds, a volume 3.5 percent higher than a year earlier. U.S. pork exports for 2023 are expected to total 6.73 billion pounds, 6.1 percent above total exports in 2022.

Major Pork-Importing Countries Shifting Purchases Away From High-Cost EU Pork Toward EU Competitors

The table below aggregates imports of major pork importing countries for quarters 1-3 for 2022 and 2023. Column 2 of the table shows the percent change in 2023 quarter 1-3 imports, compared to the same period of 2022. Columns 3-10 give market shares of major exporters— the United States, the EU, Canada, and Brazil—to these importing countries—Japan, South Korea, China, the Philippines, and Australia for 2022 and 2023.

EU-exported pork has become less competitive in international markets recently for numerous reasons,6 among them high energy costs and additional pig sector regulation. Due to these factors USDA forecasts that EU pork production will decline about 3.5 percent this year and about 1.6 percent next year. EU exports are expected to decline about 23 percent in 2023 compared to last year. The data in the table below indicate that a decline in EU exports and a shift in trade shares from the EU to other major exporting countries is already apparent in government data of major importing countries.

Japan’s imports in the first three quarters of 2023 are 5.3 percent less than a year earlier. It is notable that while the U.S. share of Japan’s import market has declined slightly from 30 percent in 2022 to 29.8, the EU’s share has declined from 33.1 to 29.3. Canada’s share has increased from 19.0 to 20.3, and Brazil’s share of Japan’s import market in the first three quarters of 2023 has increased to 3.0 percent from 1.8 percent in the same period last year.

South Korea’s import numbers for the first three quarters also show the same general shift away from the EU—53.7 in 2022 to 42.7 percent this year. The U.S. share has increased from 26.4 percent to 31.7 percent. Canada’s 2023 share increased from 10.2 to 13.9. Brazil’s share increased by a minor amount, from 1.2 in 2022 to 1.7 this year.

In China, the EU’s 2023 share dropped to 47.8 percent of China’s first three quarters of 2023 imports, compared to 53.10 percent in the same period of 2022. Brazil picked up several points: from 22.9 percent of China’s imports last year to 25.5 percent in 2023. The United States also picked up market share in China this year, to 8.3 percent from 7.5 percent of China’s January– September pork imports last year. Canada’s share moved up from 6.0 percent in 2022 to 8.8 percent this year.

The Philippines7 has shifted its imports from the EU (45.6 percent last year, to 28 percent so far this year) mainly to Brazil: last year Brazil accounted for 17 percent of the Philippine’s January– July pork imports. This year Brazil accounts for almost 28 percent of the Philippine’s pork imports. The United States and Canada also account for larger shares of the Philippine’s imports this year compared to 2022: The United States moved up from 4.3 percent to 9.4 percent, and Canada accounts for 29.7 percent of the Philippine’s imports in 2023, compared with 26.4 percent in 2022.

Australia’s imports in 2023 have shifted from the EU (47.8 percent last year to 39.1 percent this year) to the United States: 39.8 percent of Australia’s January−September pork imports originated from the United States this year compared to 18.6 last year. Canada moved its 2023 share to 6.9 percent this year, from 5.4 percent last year. Brazil also made a small increase in its share of Australia’s imports this year, to 0.03 percent from its 0.02 percent share in 2022.

The European Union’s Farm to Fork policies are proposed to become law by 20308 and may
make pork production less competitive on world markets, further reducing EU shares of major importing-country markets.