WPX 2024: Steve Meyer shares global pork outlook

US market is "better, but still not good"
calendar icon 27 June 2024
clock icon 8 minute read

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:

  1. We had to have costs go down
  2. We had to have demand improve
  3. 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.

What’s your outlook for international pork markets?

It is good. World pork production is going to be down about 1% this year according to the Foreign Ag Service of USDA. We think that is about right.

China has come back dramatically from where they were four years ago. In fact, total global production is up about 19% from that extremely low level due to African swine fever.

So, pork availability is good, but the real key is what has happened with the Europeans. They have kind of walked away from the world market with their policy decisions on agriculture in general, and livestock in particular have resulted in much lower production. In fact, we are going to export more products than they will in 2024. That is the first time since 2014 that we have been larger on exports than the EU.

We are in decent shape on that now, but we have an up-and-coming competitor in Brazil. They continue to grow, and they are going to be bigger. They only have two states that are foot-and-mouth disease-free right now. They have applied for FMD-free status without vaccination for the rest of the country. We do not know when that might come. It could be a lengthy process, but still, they are going to be competitors to the US.

The good thing on our side is the markets. Mexico has been excellent. The strength of the peso has been remarkable and that has some staying power.

We have picked up a significant amount of market from Korea from the Europeans. We have other markets that have been strong for us. In fact, they are up about 30% for the year, the ones kind of not listed in the top.

The only real kind of fly in the ointment on the export side is what is going on with the yen. It has gone down well over 50% in the last two years, but it has gone down relative to everybody's currencies. Our competitive position regarding the yen has not changed very much, but it is still not good, especially for Japanese consumers.

I am relatively optimistic about exports this year and our position in world markets. We are going to export about 27.5% of our production this year. That would be record large. There have been times in the past when we looked at 23% or 24% and thought, we are not comfortable with that. At that point, you have a choice to make, you get comfortable with more exports, or you do not grow or you probably reduce the size of your industry. And that is the real star so far this year in economic performance is what is going on in the export market.

What role is African swine fever virus still playing in countries like China, Vietnam and the Philippines?

Well, it is still a problem. Especially in China, where they not only have the wild strain of African swine fever, but they have these ones that were started with their poorly designed vaccines that kind of keep floating around. It is going to be endemic there. I do not think they will ever get rid of it at this point.

Vietnam has put up a fairly good fight with the help of US technology, veterinarians and those kinds of things. They seem to be getting a bit of a handle on it. USDA FAS has them recovered completely from ASF. I do not believe that nor do the veterinarians to which I have talked.

The Philippines is still struggling. They are basically level since they sold off. This is a devastating disease, and it is still popping up in Eastern Europe on a regular basis. We have not heard much out of the Dominican Republic. It is going to be there probably forever as well, but we have limited it. It stayed there and so that's kind of the best we can hope for.

It is still a threat to the US industry and one that thankfully it looks like with the federal government and others putting more resources into interdictions, we have a real chance to keep it out of here.

There were people that said once it got to the Dominican Republic, it will be in the US in six months. Well, I did not believe that then and it has proven not to be true. If you asked me, will we have it within the next hundred years? The answer would have to be yes. Will we have it within the next five years? I would say no. It all depends on the sample size there.

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