Steve Meyer, chief livestock economist with Ever.Ag, spoke with The Pig Site’s Sarah Mikesell at World Pork Expo in Des Moines, Iowa, USA. Meyer spoke at the Expo’s Pork Academy session about the economic outlook for the US swine industry and shared highlights from his presentation.
Steve, what was your key message to the audience?
Things are better but still not good, and so coming off an exceedingly difficult year in 2023, saying that they are better is not saying very much, but I have been saying for a long time that one or more of three things had to happen:
We had to have costs go down
We had to have demand improve
Or we had to cut supplies
We have not cut supplies. Productivity is taking care of that even though the sow herd is smaller than it was a year ago. Demand improved dramatically in the second half of last year, but it softened some this year. The cost of production had the possibility of going down some, but that is a teetering edge as well, so we are going to have lower costs.
Last year, my model had us at $97+ on break-evens. We are down in the $87 range, so that is better, but it certainly is not low. In 2020, our average costs were a little over $60. And I do not think it is going to get a lot better.
Even with a good crop this year, we are going to stay in the $80s. We have non-feed variable costs and fixed costs that have gone up sharply, and so we are going to be a world where we have a lot of break-even costs in the $80s for the next several years, in my opinion.
On the demand side, we softened a little bit as we have gone through the spring. April looks like it might be a little better on domestic demand. The real star so far this year has been exports, and last year we were up over 8%. This year, we are up about 8% so far. Brett Stuart, our colleague out at Global Agritrends, has us up 9% for the year. So, that is important because that 9% growth in exports takes about 2% of our production off the market here and certainly supports prices. The outlook on exports is surprisingly good.
The Europeans have almost ceded the export market to a great degree. The US is going to be larger than they are this year as exporters. That gives the US opportunities in Southeast Asia and Korea which has been a good market so far this year.
Mexico's the star and over 40% of our exports go there. What’s remarkable is the strength of their currency. I never thought I would live to see the day when we talked about the strong peso, but it is much stronger. That is a positive and these good things are adding up.
My model is still slightly negative for the year. It was plus $10 back in March. It has gotten a little worse since then, but it could bounce back. We should see a little bit of seasonal strength in hog prices this summer, but I am concerned about the fall.
You mentioned the grain crops. How big of a role do they play?
Well, obviously, corn and soybean prices are extremely important to pork producers. Now, that is not the #1 driver. The #1 driver is the price of pigs. The revenue side is always the #1 driver of profitability, but the cost figure is important. It is not quite as important as it was because non-feed costs have gone up over the last few years, and they are not going down.
It is critical that we have good crops. We have had three reasonably good crops without very good weather. This year, the Argentinians had a much better crop and the Brazilians have had a good crop.
We need a good crop to keep costs in check. It is not that we are going to drive costs down very much as we just need to keep them from going up. We are sitting on that well.
There has been a lot of talk about planting progress, and we have finally got the crop planted. It has been a little slower than normal, but that does not have much to do with the size of the crop. This crop is determined by rainfall in July for corn, rainfall in August for beans, and temperatures up in the 90s F without going into the 100s F. If you have those three things, you are going to have a great crop and all that lies ahead of us. The forecasts are rather good for that so there is a chance we are going to have good crops. Does that mean that we are going to have $75 breakevens? No, we are probably still not going to get out of the $80s.
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