Weak Demand and Hefty Supplies Continue to Weigh on Hog Markets

It’s been a difficult year for the pork industry as several factors conspire to challenge producers and processors.

CME Lean Hog prices hover at near three-year lows, with values holding around $71 per hundredweight (cwt), about $5/cwt higher than recent lows. Lee Schulz, extension economist at Iowa State University says the university’s Estimated Livestock Returns model forecasts pork producers are likely to experience a $32 per head loss in 2023. If conditions don’t change, Schulz says Iowa State’s model projects an $18 per head loss for 2024.

“If realized, 2023 and 2024 will go down as the worst two-year stretch for profitability in hog production, even eclipsing the infamous losses in 1998 and 1999. But profits will eventually return to the pork industry,” he wrote in an October blog post.

Trish Cook, president of the Iowa Pork Producers and a producer with a farrow-to-finish operation in eastern Iowa, feels these struggles personally.

“The economic challenges have been really, really, hard in our industry,” she says.

Don Close, chief research and analytics officer at Terrain Ag, says the financial losses hog producers face are also extending to the pork processors. In April, Tyson closed a Nebraska pork plant following a fire, and Smithfield announced it was closing its Charlotte, N.C. pork-processing plant. Earlier this year the processor said it was closing nearly 40 farms in Missouri.

“Both the product producers and the processors are being squeezed at the same time,” he says.

As profitability declines and challenges mount, trading in CME Lean Hog futures has climbed to its highest level since 2019 when African Swine Fever impacted markets. Both trading volume and open interest – the number of unsettled contracts – have surged as market participants manage price risk.

Animal feed and running facilities are two of the biggest costs for pork producers, Cook says. CBOT corn prices traded over $6.50 a bushel in the spring and soybean prices topped $16 a bushel this summer. Those prices have retreated by 30% for corn and 20% for soybeans, which will help take some of the sting out of weaker margins. Cook notes that liquid propane costs are down from a year ago, making it less costly to heat hog barns, which will also help.

The drop in feed grain prices is bringing some relief, but the impact is limited, says David Weaber, senior research analyst at Terrain Ag. “The price for livestock is still so depressed, that it's minimizing losses, not getting us back to any kind of profitability,” he adds.

Although hog values are weak, animal supplies are still stout. The U.S. Department of Agriculture’s September Hogs and Pigs Report showed hog numbers increased slightly. There are 74.3 million hogs and pigs on U.S. farms, up 2% from June and marginally higher than a year ago. From June to August, pork producers weaned an average 11.6 pigs per litter, and producers intend to have 2.94 million sows farrow between September and November, with plans to slightly decrease that number to 2.91 million from December to February 2024.

As a farrow-to-finish producer, Cook says she hasn’t adjusted production in light of weaker prices. “A lot of times in this industry, it's not like you hop in and out. You've got facilities; you have a fixed cost in that facility,” she says.

With input costs easing and expectations that hog numbers will begin to taper off, she’s looking ahead to next year for what she hopes will be better times.

“We are really hoping that in mid-2024  we’ll see profits,” she says.