Costs must fall, demand must improve, supplies must decline

You know the drill: One or more of those factors had to happen to improve pig farmers’ financial prospects from the dismal level of 2023. What I haven’t said often enough, I suppose, is that, collectively, those three factors have to improve BY LARGE ENOUGH AMOUNTS to make a difference for pig farmers. Two have improved and one hasn’t changed but are the magnitudes large enough to prevent the failure of a significant number of pig producers? 

Costs have indeed declined. Figure 1 shows my latest estimates of costs for the remainder of 2024 and 2025 based on Iowa State University parameters and corn and soybean meal future.  My forecasts for 2024 cost now stand at $85.32/cwt carcass, sharply lower than last year’s record of $97.31 but still far higher than those of 2020 ($63.65) before biofuels policy changes and tax credits began to wreak havoc in grain buyers’ worlds. 

Prospects for yet lower costs are quite good. While corn planting lagged somewhat back in May, the crop was finally planted pretty much on a normal schedule. The same is true of soybeans and last week 67% of both corn and soybean acres were rated as in good/excellent condition. There are some bad spots for sure (NW Iowa, SW Minnesota, SE South Dakota, for instance, due to heavy rains) but this crop looks good for now. Late July rain for corn and August rain for soybeans are still the biggest factors for large crops but forecasts look good at present.

But how much lower for costs? Futures markets say “NOT MUCH.” The average for 2025 in Figure 1 would be $84.84 at present. Should things go swimmingly well and corn go to $4.00 and soybean meal to $300/ton that cost estimate would go to $81. That’s a bunch better than $97 and it would get many producers into the black but will it provide much financial healing?

Demand is another story. May export data released last week resulted in some soft news for both exports and domestic demand. The situations are certainly not disastrous but May results do not point to demand growth being enough to overcome current costs by enough to heal producers’ wounds.

May exports were down 11% from April and 5.7% from one year ago. Year-to-date exports are still up 5.3% but the May decline puts a little rain on what has otherwise been a wonderful 2024 parade. Mexico has been (and remains) the leader but even shipments south declined in May – and that was before the peso took a 9% hit following the election of Claudia Sheinbaum as president.  I’m not at all clear on why that election result had this impact on the peso since Ms. Scheinbaum is of the same party as outgoing President Obrador and, from all accounts, was a close associate and like thinker to her predecessor. She is an avowed environmental activist but this impact on the peso still seems extreme. The good news is that the peso has stabilized in the past three weeks.

We and our colleague Brett Stuart at Global Agritrends still expect healthy growth (9% or so) for exports this year.

Domestic pork demand is still quite stodgy. May real per capita expenditures were 1% lower than one year ago, leaving YTD RPCE down 3.2% (see Figure 2). Note though that YTD RPCE is almost exactly the same and the average for the past 5 years - and that figure includes the very strong demand witnessed in 2021 and 2022. Conclusion: Demand is not strong but is not bad. Nagging question: But is it strong enough?