Stagnant demand, lower exports, higher production costs create 'worst financial times for pork producers in 25 years'

Storm Lake Times Pilot photo

Overproduction and high costs are tanking the pork industry, but "the glut of pork on the market has yet to translate into lower prices for consumers," reports Patrick Thomas of The Wall Street Journal. "Hog farmers in the U.S. are being squeezed and even driven out of business as they lose money at their worst rate in decades. Meatpacking companies, including Smithfield Foods, Tyson Foods and BSJ, said pork profits are shrinking, leading some in the industry to scale back operations ranging from hog farms to processing plants."

Tom Cullen of the Storm Lake Times Pilot in Iowa reports, "Hog prices at all levels have decreased. Prices for pigs six to eight weeks old have slumped by 80% since last fall, suggesting a contraction is on the horizon. Production costs have increased 50% in two years. . . . California's Proposition 12 could force producers to invest millions into new confinements, creating space for sows that previously couldn't stand up, turn around and extend their limbs. The state law is expected to take effect July 1." Lee Schulz, an Iowa State University Extension livestock economist, told Cullen that these are "the worst financial times for pork producers in 25 years."

Dwight Mogler, an Iowa family farmer with "more than 200,000 hogs, told Cullen his operation 'won't exist' if market conditions persist." Cullen writes, "Mogler is losing $30 to $40 per head on each hog he sends to market. He believes he will sell half as many hogs in 2024 as this year. Mogler told Cullen: "This could very well be the biggest event of consecutive month-to-month losses the industry has seen. And there's no light at the end of the tunnel. . . . We will not exist as a farm if this doesn't get remedied."

The problem has built up over several years, and the remedy will take some time. In 2018, China's pigs were "devastated by an African swine fever outbreak. . . . Exports from the U.S. hit a record 7.3 billion pounds in 2020, according to federal data. In 2022, U.S. pork export volumes fell 10% from the year before as China began rebuilding its hog population," Thomas reports. "With less U.S. pork shipped overseas, more remains at home, where demand has stagnated. . . . Shane Smith, chief executive of Smithfield, the biggest U.S. pork producer, said the end of pandemic-era food-stamp benefits earlier this year also has cut into U.S. shoppers' pork purchases."

"As companies up and down the supply chain grapple with lowering demand, production costs will remain the same. Wages at meatpacking plants have increased substantially since the Covid-19 pandemic," Cullen reports. "Feed costs, which are derived from commodity prices, have increased. Fuel costs are also up." Schultz told Cullen: "The costs for producers . . . they're here to stay. You account for labor, interest rates, fuel, feed, and production (costs) will remain relatively high."

Proposition 12 will change the pork industry. Cullen writes, "Prices inside California, the largest consumer of U.S. pork, are expected to rise while decreasing in every other state. . . The long-term implications of the law cannot be estimated. Schulz said producers that can afford to make the shift to comply with Proposition 12 will be paid a premium for what is perceived as best animal-welfare practices. The question is whether those premiums can pay for new investments amortized over 15 to 25 years."