While the past couple of years have been challenging for the swine industry, there are reasons to remain optimistic looking forward. Falling cost structures, some profits materializing in the third quarter of 2024, strong export demand and the potential for lower interest rates are all positive indicators in the current environment.
Let’s start by examining costs. The cost of grain inputs has fallen substantially over the last 12 months and may continue to fall if current yield estimates are realized. It appears we have a very good crop coming. In southern Minnesota, some spots have experienced drown-out areas; however, overall, I expect a decent crop as there has been adequate rainfall compared to the last two years. As a result of lower grain prices, we’ve seen costs move down into the $80s per carcass hundredweight. There may be an opportunity to continue lowering costs, given current grain board prices, provided you have good health and throughput in your system. Dare I say, costs in the $70s per carcass cwt? We haven’t seen production costs in that range since sometime in 2021.
While there has been a lot of pork offered to the market, cutout is still hovering around the $100 range. Over the last few weeks, the USDA weekly slaughter hog numbers have been at 2.44 million, 2.46 million, 2.37 million and 2.51 million head, respectively. That’s a lot of pork, but with cutout at that price level, it indicates that product is continuing to move. Looking forward, there may be some seasonal softness for fourth quarter and the first quarter of 2025, but crush models still show positive margins available in the second and third quarters for next year.
Pork exports cooled off a bit in June; however, we had a very strong start to the year. Mexico has led the way, with volume up 6% over last year and value up 13% to $1.3 billion through June. Additionally, weekly data suggests a strong month in July as the domestic hog price in Mexico rose substantially. The U.S. has benefitted from adding new markets to diversify its export strategy. The industry continues to benefit from key markets like Mexico and Japan and has seen substantial growth in others, including the Dominican Republic (value up 17%), Colombia (value up 44%) and Malaysia (value up 43%). Overall, exports accounted for approximately 30% of domestic production through the first six months of the year, equivalent to a value of $66.54 per head, up 4% over the prior year.
The broader U.S. economy feels like it is slowing down, with the Federal Reserve getting closer to its goal of curbing inflation via increased interest rates. Interest expense has become a real cost for pork producers over the past 24-plus months, with substantially increased rates and many producers borrowing more on their operating lines due to increased cost structures. There may be some relief in sight, as the latest headlines suggest the Fed will likely start reducing rates starting with their meeting in September. Any reduction in rates would be a welcome relief and could further help reduce cost structures.
I encourage you to remain diligent on reviewing costs as things are changing in your operation. Keep your estimates up to date so you can make good, timely decisions as the markets change rapidly. Cost structures are falling, people are making some money this summer and there are opportunities out there in 2025.
Click here to see more...