24 September 2024

6 minute read

By: Lee Williamson

North America

Christine McCracken, Senior Animal Protein Analyst with Rabobank, recently spoke to The Pig Site’s Sarah Mikesell at 2024 World Pork Expo in Des Moines, Iowa in the United States.

We want to talk about Rabobank’s outlook on the U.S. swine market or pork market. It’s been a tough 18 months or so, let’s lead off with your short-term expectations?

The good news is that it is getting better. It has been a tough couple of years as you mentioned, and we have finally gotten a better balance of supply and demand.

A little less pork may be entering the market and demand has been able to catch up. A lot of that has been driven by export demand which has really helped the market lift out of the tough economic period that we went through.

The other side of it has been the cost improvement. We've seen feed costs coming down by over 20%. Obviously, it has driven a nice rebound in profitability for our US hog producers. For the most part, we turned profitable in the spring, and we think that will continue all the way into the early fall. That is great news, but there is still a lot of recovery and rebuilding of balance sheets that needs to happen over the next coming months.

It was tough for a lot of producers especially if they did not do a good job managing their risk or had some health challenges that were outside the norm. Fortunately, a lot of guys made it through. In this last cycle, we saw a lot less bloodshed maybe than we have seen in previous cycles. That is good and bad because typically what you see during the down cycle is that we do have some contraction of the sow herd. It sets us up for a longer period of recovery. Without that, it might be a little tougher through this next part of the cycle absent any outsized demand improvement.

So, on the one hand, it is great that the industry maybe did not suffer as much as they would have in the past due to some better risk management or better internal operational efficiencies. The reality is, it might lead to a more challenging outlook over the next several months.

How is the demand for pork and other meats impacting the industry?

When you look at pork demand, and it has been a little softer than maybe we had expected coming out of the last year, the pork on the shelf is an excellent value. However, the reality is that the US consumer just is not going there today.

You must ask yourself why that is. It comes down to a few things. People want convenient products, and pork is not always hitting the mark there. The National Pork Board and others are putting a lot of effort into finding ways to make that easier for consumers. The other piece of it is our pork is kind of an ingredient. We are looking at new ways to include it on the menu. Whether that is as a topping or ground pork is finding a way into a lot of consumers' homes.

I do think there are ways to expand or broaden our universe and how we use pork. The reality is it has been rough here in the US. When we take a step back and look at the second half and what our expectations are around demand, it comes back to there should be a lot fewer competing proteins out there for us in the back half of this year. This leads up to a good outlook for pork consumption.

We think there are some reasons to be optimistic. There is going to be a lot less beef on the market. There is going to even be less chicken, we suspect, in the back half of the year tied to some production issues. That should drive a much better environment for pork, but so far, it has not turned out to be the case yet.

What role do Canada and Mexico play in the US swine market?

It is interesting to see how the markets have evolved over the last several years. When you think about Canada and Mexico being such important partners of the US pork industry, we have a steady stream of weaned pigs coming from Canada on a regular basis and that feeds our industry and is a critical part of the supply chain. However, they are reducing their sow herd in Canada and that could restrict flows going forward.

On the other side, we have seen a lot of market hogs coming across the border as some of their packing capacity has shuttered. It has been tough there too, so we have had more market hogs coming into the US that has put some pressure in our market. There are a lot of dynamics between the US and Canada. We send a lot of pork to Canada, and they like to send some here. It is a good relationship.

Mexico's a little different. Mexico's been the gold star, the champion of US pork exports this year (2024). An important partner for the US because the peso has been so strong, and they love pork. We can send fresh pork to Mexico, and it is a good value. There has been an election in Mexico, so we do not know how that relationship might look going forward, and the peso has taken a hit lately.

What we do know though is that they are not self-sufficient in pork. They love pork, and we are probably the best value for them. We think it will remain an important partnership, whether it continues at the pace we saw in the first quarter, is anyone’s guess. As it stands today, Mexico is still going to be an important partner for the US.

Pork in Mexico is a cultural component to their lifestyle and celebrations. How does that play a role?

Pork is a critical part of their diet. It is not as though they are going to move away from pork overnight. Chicken is also an excellent value for them, but they've had ongoing issues of avian influenza that have really limited and constrained their supply of chicken. Right now, pork is a substantial value and it's top of mind for them.

The other thing happening in Mexico that could make it a compelling case for increased pork consumption is the onshoring of manufacturing in Mexico which continues to drive incomes and GDP growth in Mexico. We think that is positive for pork consumption as well.

So, some things to be excited about as we think longer term in Mexico, especially given how important pork is in their diet.