Mark Schweitzer, Vice President of Global Economic Research with ADM, spoke to The Pig Site’s Sarah Mikesell shortly after World Pork Expo about the economics of the US swine industry. Following is an abbreviated version of the discussion.

Can you share some highlights from the ADM business seminar focused on the economics of the pork industry at World Pork Expo?

There’s no question that the main topic of conversation at Expo was the current state of the economy in the pig space. When you look back and think about the years of expansion across the pig space in the US market which resulted in an over-supplied industry, coupled with slowing demand, slowing economies, rising costs and new regulations. It's been a really tough road for producers. The entire value chain across hog production has experienced some sort of economic disruption this past year.

One of our speakers, Dr. Dermot Hayes, an economist from Iowa State University, had a really interesting slide. He estimated Iowa hog returns for farrow-to-finish for this year, and he also did a forecast that ran through 2024. But we have matched, unfortunately, the lows that were made in 1999 in his forecast on the margin structures actually go out into early 2024 with projected losses. It feels like maybe the worst – the $55 to $60 per head loss in central Iowa – may be behind us. However, we still have a difficult road ahead of us as we move into 2024.

What is the outlook for the rest of the year?

When you think about where we're at today and where we’re headed, it certainly feels that it's going to take the industry through 2024 to right-size. In other words, to get the supply at equilibrium with demand, it's going to take some pretty severe actions of reduction of inventories, somewhere 5% to 6% yet to go in reductions in sow size to get us to that equilibrium point. So how long is it going to take to clear these stocks? It's probably going to roll well into 2024, so we’ve got a little bit more to go through it.

Is this a cyclical correction we are seeing?

Absolutely. It's so easy to focus on the headwinds and to talk about the obvious. We talked about too much production. There’s uncertainty of the US weather, which maybe doesn't lead to lower feed costs because of the acute dryness that's happening and the uncertainty in the commodity markets that we've seen in the last 10 days. Plus, higher prices, the complexity of China trade and tariffs, US interest rates, a slower economy in the US and globally, federal and state regulations that we're seeing pop up, and of course, the Ukraine conflict, those are all headwinds that we're facing. It's easy to get focused on those and say, ‘there's no end in sight.’ But when you go back and look at some of the data from 1999 when the US industry was down at a $50 to $60 per head loss on farrow to finish, one of the positives to focus on is that if a producer pays attention and can control the financial health of their balance sheet and they're quick on the trigger to delay any expansions or any renovations, and they can right-size their business according to the demand that they're seeing, that is key to being able to get through this downward cycle. Everyone's talking about 1999, but what came after 1999? We had some really good years that followed, and it sure feels that once we get this market right-sized, we'll be able to have some tailwinds for the producers and get into that plus $30 to $40 per head for farrow-to finish down the road.

One thing that's interesting is when you look at the beef cycle, the beef cycle is in total opposite of what's going on right now with the pig cycle, which is extremely rare. The beef price goes up, but we're getting compressed on pork pricing. At the beginning of the year, USDA came out and said we're at a 61-year herd low; we haven't been here since 1962. That's probably a good thing for pork because if we keep beef prices higher, that helps us as we rebound to support higher pork prices too.

What are some things that producers could do right now to ease the economic pressure they're feeling?

They are the experts in their operating space - they're doing an excellent job of paying attention to their rate of gains and feed costs. If I'm a producer, the one thing I'm looking at is renovations. Any kind of delay in any capital expenditures would be prudent at this time. You’ve got to keep the financial health of your balance sheet and keep your debt ratios low. Try to make it to that next cycle and beat the lows/trough, so you start to get the tail winds and then you're into that $30 to $40 range. Consider anything you can do to preserve the financial balance sheet. Each operation is so different; it's almost limitless the things you can do. You just have to find any leakages or exposures in your operation.