June 23, 2023

US swine farmers face mounting losses due to drought and declining demand

US swine farmers are grappling with substantial financial losses, to the extent that some may soon resort to selling the corn typically reserved for animal feed, warns Smithfield Foods, Yahoo! Finance reported.

Shane Smith, chief executive officer of Smithfield Foods, said that producers will soon be compelled to downsize their herds as growers face losses of up to US$80 per head. The diminishing demand from China, a major buyer, coupled with skyrocketing animal feed costs, is exacerbating the situation.

The drought in the Midwest has significantly damaged crops, with corn conditions reaching their worst level for this time of year since 1992. Such conditions are squeezing profits and increasingly tempting growers to sell their grain, which has seen an increase of over 20% from its lows in May.

Smith said there is a concentration of people in the industry who grow their own corn and they feed it to the animal, but they are going to have to decide if they sell their corn and just forget about the animal.

According to Smith, US growers typically begin reducing their herds only when faced with cash flow losses, and that scenario is already unfolding. He refrained from commenting on whether Smithfield, owned by Hong Kong-listed WH Group, has plans to implement cutbacks as well.

The US meat market is confronting an excess supply that may take until the end of next year and even extend into 2025 to rebalance, according to Smith. This is occurring concurrently with the fact that only 55% of the US corn crop has been rated as good to excellent, the lowest level for this period in over three decades, as per data from the US Department of Agriculture.

California, which consumes approximately 15% of the nation's pork, has enacted a law stipulating that meat sold in the state must originate from animals raised in larger spaces. This legislation has increased costs for producers. Starting from July 1, only meat from animals raised according to the new regulations can be sold in the state. Pork already in the supply chain by that date can be sold until the year's end, as announced by the California Department of Food and Agriculture.

-      Yahoo! Finance