Meyer: 2024 to Be Worse Than 1998
Published: Friday, December 15, 2023
While U.S. pork exports are projected to be up 6-7% in 2024 and costs are falling, the new year is still looking dismal in the eyes of Steve Meyer, chief economist of Partners for Production Agriculture. In fact, 2024 will be worse than 1998 or 2009 for the pork industry, he told pork producers from across the Midwest last Tuesday. The reason? Demand in 2023 has not matched the 2021-22 levels.
Meyer gave his report to hog farmers gathered in Lebanon last Tuesday for the Midwest Pork Conference.
He said they have one of three ways to increase and maintain profits: increase consumer demand, lower the cost, or chop into the pork production rate. He's not optimistic about costs changing very much.
"Will we reduce supplies?" Meyer asked. "That is always a last resort."
He said pigs per litter in June and August was up 4.2% nationally, and production seems to be growing.
"I think productivity is off to the races, with about 3 million sows in 2022-23 and the lowest cumulative incidents of PRRRS (porcine reproductive and respiratory syndrome) in sow units," he said.
Meyer also noted that hog slaughter on an annual basis is up 4.3%, and has increased 2.6% per every four weeks, nationally, since last year. Year to date, the rate is up 1.6%.
"The producer-sold pig weight is above the '22 level, and packers are at a five-year average," he said.
However, with costs and demand only expected to show moderate changes, Meyer said the breeding herds will "eventually be forced to shrink sharply, as much as 10%."
This is due to a lull in demand.
"Consumer-level demand slid in 2020-21, but is rising," he said.
He predicts that producer costs will decline, but the amount will be limited to the mid-$80 range. Exports are expected to be up, but only by 6-7% in 2023 and 1-2% in 2024.
"Costs in 2014-20 fell back toward pre-ethanol industry prices," he said. "Renewable diesel is the big changer, adding value to all fats."
This means soybean meal costs will continue to be high.
"The good news is crush capacity is increasing," Meyer said.
He went on to say that while fuel ethanol is facing trouble in an age of electric vehicles and other climate-smart initiatives, sustainable aviation fuel will keep it in the markets.
Another factor in costs is the presiding political party. Meyer said if the Democratic Party maintains control, carbon policies will continue to change, and rising prices will likely persist. However, he is skeptical about the Republican Party's ability to get organized enough to make lasting changes.
He also estimates that soybean meal costs will be around $90 a hundred weight (cwt.), possibly down to $70 cwt. by 2028 if costs drop.
"We're in a fixed reduction rate," he said.
However, he added, Brazil may be able to ease the pressure on U.S. feed prices.
"But if Brazil does save us, it would imply that they have taken over world markets for corn and soy," he said.
"With exports, the interior price is the Gulf price minus transportation. If we don't export, the interior price becomes the Gulf price plus transportation," Meyer said.
Turning to the question of demand, Meyer said he doubted that consumers will crave pork in the same way they did in 2021, when it was at a record high.
"Income level is a positive for pork demand," he said. "Demand surge and fall is directly correlated with stimulus checks."
Meyer also noted prices for beef are "poised to help, but impacts are not large," and pork and chicken are close to their "forever" prices. Being the most expensive meat, beef demand is likely to drop due to prices which have been rising since mid-2022. Chicken is the least expensive.
"There's not a lot of demand help from beef or chicken yet," he said.
But it may come. As pork producers are nearing the cull line, the beef industry has been culling cattle for some time, so demand for pork may go up before hog farmers are forced to cull to mitigate financial losses due to moderate demand and high feed costs.
Across the globe, Mexico is now the major importer of U.S. pork, beating out both Japan and China.
"China's not going to be back" Meyer said. "And part of that is we can't really judge what pork demand is like in China after the African swine flu."
Mexico, Japan and China are the top importers of U.S. pork, in that order. This, Meyer said, is a bit of a surprise.
"China's imports were expected to be higher this year, but they were lower," he said. "The good news is that China buying from anyone creates opportunities for the U.S. Mexico will remain strong for U.S. pork, but Santa Catarina, Brazil is making some inroads."
Along with increased trade with Mexico, the U.S. can benefit from the European Union's output reductions and higher prices, especially with exports to Japan, Korea and Southeast Asia, Meyer said.
"And trade gains only take about 2.5% of domestic availability in 2023," he said.
A rising star between domestic and export demand is the wholesale market, he added.
"There's been a huge improvement in wholesale demand since June. Why? Prop 12," he said.
However, he also noted that only 50-60% of sows are compliant to the new rule, but there have been no shortage reports in California.
"My only conclusion: There's a lot of cheating at present," he said. Meyer suspects Prop 12 will not be enforced until the new year. "But that begs the question: What happens on Jan. 1?"
So, will the pork industry suffer in the coming years?
A deciding factor, Meyer said, may be the consumers' attitude toward pork.
"What's the first thing you think about when you think pork? Bacon," he said. However, he also said more consumers are realizing the healthy aspects of the meat, which is increasing a positive attitude toward pork.
If producers can continue to portray pork as something healthy, Meyer is confident in the rise in demand.
"Demand is actually up 6%," he said. "It could, and is getting, better. In fact, demand is good. Just not as good as 2021-22."
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