Although US domestic demand for pork was weak in 2023, demand is there so far this year.
By Moe Agostino, Chief Commodity Strategist, Risk Management, Farms.com, and Abhinesh Gopal, Commodity Analyst, Risk Management, Farms.com; Photo by Bonnie Marquette/iStock/Getty Images Plus photo
In 2023, the US pork sector was plagued by lackluster domestic demand. It was seen as being responsible for holding the industry back and depressing hog values. Producer returns remained in the red for much of 2023 and into the early part of 2024.
However, the missing link from 2023 has popped up this year as strong US domestic demand has supported stronger pork cutout and hog cash values in 2024. Add in a lower slaughter coming in at 2.5 percent below last year, and we have the recipe for higher prices.
Owing to these supportive “twin engines” since the start of the year, hog futures put on a sharp recovery and climbed by about 20 percent towards the end of January 2024. Hog futures were among the best-performing commodities during the early part of the year, and they maintained a bullish, sloping uptrend.
One thing is for sure: 2024 is unlike the forgettable year of 2023.
Strong US pork demand is reflected in strong cutouts, along with the individual primals.
The cutout value strength during the early part of the year was only really rivaled by 2022 and the record year of 2014. During mid-January to early February, pork cutouts were higher year-on-year by +11 to 13 percent and trading near $90 per hundredweight (cwt), breaking even higher, briefly.
There were market analyst reports in the second week of February that US cash hogs were up by some 40 percent since the start of the year. Strong packer margins prompted strong packer demand, and weekly lower hog slaughter levels kept the producer inventory current. Hog slaughter levels, though, were weighed down by the unavailability of animals, which is a “good” problem to have when demand is strong. It just keeps the spot cash market supported.
The third “undying” engine supporting the hog/pork industry continues to be buoyant export demand. US pork exports were able to garner a greater global market share in 2023 as EU pork exports fell off by about 25 percent year over year.
“Led by a record-shattering performance in Mexico and broad-based growth in other markets, US pork exports set a value record in 2023. The strong December results pushed the 2023 export value to a record $8.16 billion, up six percent from 2022,” noted the U.S. Meat Export Federation.
Continued strength in exports is expected throughout 2024 and for expanded demand outside of the mainstay market of Mexico. African Swine Fever (ASF) continues to plague the Chinese hog herd despite the country transitioning almost fully to mechanized and organized commercial farming in “tall multistoried hog farm buildings” following their 2018–19 ASF debacle, which spread globally and became a global swine epidemic/pandemic.
ASF seems to have hit China hard again in 2023, promoting quick liquidation among hog producers there and causing massive losses to the biggest pork producers in China.
China is likely to be forced to import large amounts of pork in 2024, and if the volumes imported during the initial weeks of 2024 are any indication, the second half of the year could see historically high US pork purchases from them.
The market has always been focused on China’s pork demand, given their appetite for their staple meat, and 2024 could turn out to be “special” at a time when Mexico continues to be the leading buyer of US pork.
Through the early part of the year, summer lean hog futures were in a contango (a futures market of contract prices rising above spot prices) versus nearby futures, suggesting a bullish summer outlook for 2024.
In early February 2024, June to July hog futures were trading at about $14 to $15.50/cwt above the April futures. Seasonally, we could see an early peak in futures (by April to May) instead of peaking during the normal June through August period.
On the supply, the US Department of Agriculture (USDA) may have been overestimating the US hog breeding herd and the pigs saved per litter numbers in the last two quarterly Hogs and Pigs reports of 2023, as US hog slaughter at the start of 2024 came in about 2.5 percent lower year over year, likely indicating a shortage of market-ready hogs.
Since the second quarter of 2023, the market has been focused on increased US sow slaughter, but the USDA breeding herd inventory updates do not seem to have done justice to the magnitude of sow liquidation in 2023.
Despite productivity increases, this spike in pig litter sizes may be overestimated given that the sow herd was shrinking in the second half of 2023.
Multiple fundamental factors are in place for a sustained rally that should support bullishness in hog futures. If China joins the demand-king, Mexico, in purchasing more US pork, it could be a banner year. All these reasons could force summer 2024 hog futures to peak in the $110 to $120/cwt range.