U.S. hog farmers endured severe market losses in recent months and it appears the bleeding will continue.
Steve Meyer, economist with Partners for Production Agriculture, projects a bleak market outlook in the months ahead that could equal or even surpass losses suffered during the historic hog market collapse of 1998.
“We don’t have a lot of upside potential in my models at this point,” Meyer told FarmWeek. “It is a very serious situation.”
Lean hog prices since the first of the year plunged from highs near $120 per hundredweight down into the mid-$70s, although a modest rally pushed hog prices back to $82.57 as of June 1.
The steep drop in hog prices combined with high input costs created losses of about $48 per head in April, based on the Iowa State University estimated costs and returns, Meyer noted.
He projects losses could ease but still hover around $30 per head for much of the rest of the year.
“That puts us in a very bad situation economically,” Meyer said. “According to my calculations, it’s likely this year ends up worse than 1998.”
Hog farmers lost an estimated $2.6 billion in 1998 based on an average loss of $28 per head. Cash hog prices bottomed at around $8 per hundredweight at the height of that economic disaster.
Many analysts attribute the price collapse of 1998, which squeezed thousands of hog farmers out of business, primarily to faltering demand for hogs due to significant cuts in packer capacity. Hog capacity declined about 8% while production increased 10% that year.
This time, a sizable drop in demand is the main culprit behind the severe economic losses on hog farms. It likely will lead to a significant cut in pork production over time, according to Meyer.
“We’re fighting a really poor demand situation and are now back to pre-2021 demand levels,” the economist said. “The problem with that is we’re not back to pre-2021 cost levels. These costs are probably going to remain persistently higher. We’re probably 30 to 40% higher than we were in those days.”
The CME Group’s Daily Livestock Report also pointed to poor demand as a key driver of the recent hog market collapse.
It reported sow prices dropped to a range as low as $16 to $21 per hundredweight in mid-May.
“The mismatch between demand for sow shackle space and poor product sales has put extreme pressure on sow credit values,” authors of the Daily Livestock Report noted. “It appears to us that both sow meat prices and pork trim values are impacted by the same thing – poor sales and buyers stuck with too much inventory.”
Some retailers began discounting pork prices at some locations in recent weeks as a result.
“I don’t think it’s a supply situation at all. It’s all really a demand situation,” said Meyer, who noted pork demand has tailed off since a recent peak during the COVID pandemic.
“It’s clear demand was enhanced by stimulus payments and an increased number of SNAP (Supplemental Nutrition Assistance Program) benefits during the COVID shutdown,” he noted. “Not only did people have more money, but they didn’t have as many places to spend it, so they bought food.”
Now, with slumping demand driving hog prices lower, Meyer believes hog farmers will start to thin their herds.
“The industry is going to get smaller the next two to three years,” said Meyer, who noted Smithfield is reportedly reducing its sow herd. “We’re going to have to make a substantial reduction in the total amount of pork supplied in order to make prices profitable again.”
The economist believes there won’t be as many hog producers exiting the business as what occurred in 1998, but that’s mostly due to the fact there are fewer farmers still in business.
• Daniel Grant writes for FarmWeek: This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association. For more food and farming news, visit FarmWeekNow.com.