Light at the End of the Tunnel For Pork Producers in 2025?
There are many variables at play, but cutout values have remained remarkably strong through the first part of fall, with margins for most producers exceeding $10 per pig. The Hogs and Pigs report indicated an increase in pigs coming to market from late fall into early winter, yet there has been a comfortable balance of pigs available, aligning with packer demand. The 2024 feed cost environment, combined with underlying strength in the cutout, is presenting forward margins that are worth revisiting if you haven’t reviewed them recently. Is it possible we’re seeing light at the end of the tunnel?
Capture Market Opportunities
The general sense of optimism from producers reminds me of the feeling I had in March. As you recall, Managed Money traders moved lean hogs to a record net long position earlier than usual ahead of the traditional summer price rally, only to see the markets fall short of our bullish early spring rally. While we hope the light at the end of the tunnel is a clear sky, we know it’s wise to take profit margin opportunities in a disciplined manner because that light could turn out to be a train.
Reflecting on recent client meetings, it’s clear there are no “average” producers. Some have been fortunate to avoid health challenges, while others have faced significant herd health adversity. Some were disciplined in their hedging activities, capturing improvements when possible. These pork producers have substantial hedging gains, improving their working capital and overall net worth. Others have struggled with tighter corn or soybean meal basis levels, resulting in higher production costs compared to peers.
Remain Flexible & Communicate Well
Producers need to understand that in the swine industry, no matter how well you performed yesterday, every day is a new opportunity for improvement. I’m always impressed by how consistently strong producers embrace continuous improvement, especially when it comes to consistency. While farm owners and their management teams must pivot in key areas, the fundamental needs of the pig remain constant. Positioning the production team for success, without the distractions of strategic pivots, is crucial. It’s essential to share updates with the broader team, but those communications should be focused on enabling them to execute well in their respective roles.
Nearly our entire portfolio started 2024 with year-to-date losses through the first quarter. As the year comes to a close, I believe many pork producers will end 2024 with a net profit, largely due to strong production performance, slat-level execution and disciplined hedging approaches by owners and their management teams.
Plan For Better Times Now
The question in my mind is, how are you positioning for 2025? There’s always a need to focus on managing insurance dynamics, packer relations, labor availability, permit renewals and facility upkeep. These areas of business can’t be ignored.
Each operation is unique in how it’s positioned operationally and financially. Some producers can’t afford much risk if current profit opportunities don’t materialize, while others have a strong capital position and can be patient in pursuit of wider margins. My advice is to be aware of where you currently stand on the risk spectrum and ensure you are intentional about your hedging strategies while positioning your team to execute consistently at the slat level.
Chat with our team of swine industry experts for help navigating market shifts. We are here for you through all of these cycles, up and down.