Demand remains a primary challenge that could impact the pork market in 2024.
Highlights
- We outline some of the issues and challenges that could impact the pork market in 2024. Demand in our view remains primary.
- Hog slaughter at 2.7 million last week was the highest for the year and this has resulted in ample supply in the market. Impact on pricing, however, varies greatly depending on both domestic and export demand.
- Good demand from Mexico and robust sales for the holiday season are supporting bone-in prices, although they are still below year ago levels (supply effect). Prices normally move lower in the second half of December.
- Ample supply is also keeping the price of pork trim and pork bellies under pressure. Frozen trim prices are still quite high, however, since packers are not willing or able to do boxing and freezing.
- Packers are also cutting fewer spareribs into St Louis style packages, resulting in fewer brisket bones and higher prices.
- Loin prices, especially boneless loins, continue to be well supported on good domestic and export demand.
Full Report
2024 Outlook
In one of our of earlier reports we focused on beef demand at the wholesale level and the fact that futures were pricing a far weaker demand environment than what we have seen in the last few years. In this latest update we have made some revisions to our forecasts, mostly to account for an increase in front end cattle and beef supplies. But we have not made any significant changes to our assumptions for beef demand in 2024 and 2025. Clearly this is a downside risk but one that we will not change until we see evidence that beef demand is indeed shifting lower.
The situation in the pork market is quite different. Wholesale pork demand has declined dramatically vs. 2021 and 2022 and our current forecasts for pork cutout in 2024 also assume a similar level of demand. Current estimates are for a modest increase in US domestic per capita
consumption and a modest increase in wholesale pork prices. However, the price increase is well below the expected level of inflation (the chart aboveshows deflated cutout values). As with beef, we will maintain our demand assumptions until we see a material change.
Recently we gave an email interview to a national ag publication. The answers to their questions summarize some of our views about the pork market, and pork market challenges, in 2023. The demand chart above should help illustrate why in our answers we continued to highlight demand as a key factor for the market in 2024.
What is your 2024 outlook for the pork industry?
From a supply perspective, we expect very modest growth if anything at all. It has been a very unprofitable year for producers, and usually there is a lag in terms of the supply response. We think the breeding herd on December 1 will be about 1.3 – 1.5% lower than the previous year. Productivity gains have offset the reduction in the breeding herd so far. If that persists, then we are probably too conservative in our supply projections. Increased competition from chicken at retail and a slowdown in economic activity is problematic from a demand perspective.
The post-COVID demand bump (2021/2022) all but disappeared in 2023 and is unlikely to be repeated in 2024. But we also do not think that the wholesale price collapse we saw in the spring of 2023 is a good indication either.
Our expectation is for wholesale prices to be higher than they were in 2023 but the forecasted wholesale prices are not expected to be robust enough to support expansion. Despite lower grain prices, margins are expected to be thin and inefficient producers will have an uphill climb.
What do you anticipate as the biggest obstacles regarding profitability in 2024?
Demand remains the biggest challenge in our view. The obstacles created by Proposition 12 in California and Question 3 in Massachusetts have not gone away and have the potential to negatively impact sales in 2024. Our understanding is that the supply of compliant pork continues to fall short of potential sales. Export demand is also problematic with more competition from Brazil and punishing tariffs in China. The slowdown in global economic growth and higher odds of recession further cloud the profitability outlook.
If you could offer up one piece of advice to producers in 2024, what would it be?
It is the same advice we have given in the past. Live to fight another day. Have a risk management plan in place, understand the difference between hedging and speculating, and take advantage of opportunities when they appear.
What will be the drivers of change for pork producers in the year ahead?
Several factors have the potential to impact pork producers in 2024. Feed costs are expected to be contained but nothing is guaranteed, especially with Brazil now the top corn exporter in the world.
African Swine Fever has not gone away. China and counties in Southeast Asia have learned to live with it and major European pork producers (Denmark, Spain, France) have managed to keep it at bay. But it’s knocking on their door. This has the potential to significantly impact demand for US pork.
The global economy is slowing down as higher interest rates start to bite. About two thirds of the growth in US pork production the last two decades is due to higher exports. Exports have been and will continue to be a key driver for change. Often producers tend to focus on supply but demand, both in domestic and particularly export markets, has the potential to be a significant driver.
What is the most important pork industry question on your mind heading into 2024?
Will domestic and export demand be robust enough to allow producers to eke out a margin and avoid more small producers from abandoning production, leading to further consolidation and concentration?
Price Chart
Forecasts
Steiner Consulting Group produces the National Pork Board newsletter based on information we believe is accurate and reliable. However neither NPB nor Steiner and Company warrants or guarantees the accuracy of or accepts any liability for the data, opinions or recommendations expressed.
