Productivity gains put US producers on long-term growth trends for litter size.
By Moe Agostino and Abhinesh Gopal; Photo by: Jodie Aldred
This article is from our sister magazine, Better Pork.
North American hog producers live and die by the gyrations in hog futures.
The year 2023 was not the kindest to hog futures and to hog producer margins.
Futures reacted sharply to the developments in the US hog/pork sector. The trend in 2023 had been that of a shrinking breeding herd. The US Department of Agriculture (USDA) has been reporting on a shrinking US hog breeding herd that could break below the industry’s comfort level of six million head for the first time in a long time.
Canada’s hog herd as a whole is expected to shrink in 2024 on account of reduced Canadian packing capacity that shrank in 2023 due to plant closures and continued labour availability issues. Their issues are likely to continue in 2024.
US domestic hog and pork demand was a sore spot in 2023, and that too is contributing to the Canadian and US hog herd shrinkage. Domestic demand continued to be the missing link in 2023 when exports did a lot of the heavy lifting, especially with Mexico buying record amounts, as domestic consumers preferred spending more on beef despite record-high prices.
We spoke previously about the surprise in the September USDA ‘Hogs & Pigs’ report update in terms of higher-than-expected US hog inventory. This was on account of increased productivity, especially due to better mitigation of diseases from the hog herd.
With a much healthier herd, as the big integrators reduce old sows from production, you have a recipe for more supplies at lower prices that result in losses for hog producers despite lower feed prices.
The very big hog integrators control two-thirds of the total sows in the US. So, when they lose on the hog production side, they make it up on the packer side.
That is causing losses to continue as they are reducing less productive sows and replacing them with more productive ones. Better health has surely been a key driver.
The increase in productivity gains (pigs saved per litter), feed efficiencies, and less disease offset the continuous labour challenges of 2021 and 2022. This put US producers back on their long-term growth trend for litter size, and that trend should continue in 2024.
The average US pig litter size from September 2007 to September 2023 grew at an annual growth rate of over 1.5 percent. Also, the continuous increase of the US pig crop despite farrowing remaining stable over the last 28 years reflects the productivity increases in the industry.
The quarterly USDA ‘Hogs and Pigs’ reports always garner keen market attention, but since the latter half of 2023, it has been watched more closely for more surprises. Given the losses producers faced over the last two years and are likely to face in 2024, resurgent producers are likely to be forced to trim the breeding herd again in 2024.
According to estimates by the Iowa State University economics department, a normal farrow-to-finish US hog producer would have faced losses in 10 months during the 12 months from November 2022 to October 2023, with the hefty losses averaging US$21 per hog per month.
Hog farmers are likely to have been forced to liquidate sows in the winter, which is expected to cause lower hog and pork supplies in 2024. But this has been talked about repeatedly, and it’ll need to be monitored closely to see how it impacts the market.
A more optimistic view of the economy and the prospects of lower interest rates in the second half of 2024 could help ignite more domestic demand and support lean hog futures in 2024. As demand improves and costs drop slowly, lower supplies are needed to boost the hog producer's profits in 2024.