As we close the books on calendar year 2024, the story for pig farmers was largely one of strong pork demand and falling feed costs. The improved profit margin outlook over the past 6 months was a welcome change from what the sector experienced the previous 2 years. As it stands today, pork producers have the opportunity to protect historically favorable profit margins over the course of the next 12 months. Let’s take a look at what is on our mind as we turn the calendar to 2025.

Hog and Pork Outlook

The latest WASDE report pegged 2025 pork production to increase by 2.0 percent year-over-year. USDA on December 23 released its quarterly Hogs and Pigs report. While the report mostly came in close to analysts’ expectations, there were some surprises. Total hog inventory on December 1, pegged at 75.845 million head, was above the high end of expectations. The September-November pigs saved per litter once again came in above the high end of expectations as well. This has been a trend throughout the last year and a half and is a testament to the productivity of the industry and the overall health of the sow herd. Producers also intend to increase farrowings throughout the first 5 months of 2025. The higher productivity coupled with increased farrowings could pressure the Q2 and Q3 2025 hog prices should they come to fruition assuming demand stays at current levels.

Figure 1. December 2024 Hogs and Pigs Estimates

Herd health is a perennial theme as it relates to availability of animals and their performance, and this year is no different. Anecdotal reports from producers indicate PRRS arrived earlier than normal and may be more widespread than in the past few years. Perhaps its early arrival means the worst of it is soon behind us, which would be supportive of hog supplies in the second half of next year. As always, lurking in the background is also the threat of a foreign animal disease being discovered in our herd and its subsequent impact on trade flows. The knock-on effects of such a discovery would be massive for an industry that exports nearly 30 percent of its annual production. As such, this has motivated some producers to put coverage in place to protect against price shocks should this occur.

Pork exports over the past year were strong and the hope is for this trend to continue into 2025. Through the first 10 months of the year, pork exports were 4.5 percent higher year-to-date. Much of this increase was due to strong sales to South Korea, Mexico, Colombia, and Australia.

Figure 2. Year-to-Date Pork Export Performance by Destination

Outstanding pork sales for 2025 have climbed in recent weeks and are at their fourth-highest level for this point in the year over the past decade. It is worth noting that these sales are not the complete story as it is only intended to capture pork muscle cuts (not processed product or variety meats) and sales can always be cancelled ahead of shipment. Regardless, it is better for the pork producer to have sales on the books at the start of the year rather than the alternative.

Figure 3. Outstanding Next Marketing Year Pork Export Sales

The incoming Trump administration brings hopes of business-friendly deregulation for many producers. At the same time, it has caused consternation for the prospect of trade relations with some of our largest pork exporting partners. While we have no indication on how trading partners could or would respond to potential tariffs implemented by the U.S., history indicates that pork producers could be at the tip of the spear of retaliatory tariffs in return. According to USDA, the consequences of the previous round of retaliatory tariffs on U.S. by China and Mexico decreased pork export volumes by 19 percent and 13 percent, respectively. The threat of reduced or cancelled export orders in the event of a tit-for-tat trade war is a realistic threat and should be considered when making risk management decisions at historically high margin levels.

The rally in the U.S. dollar over the past 3 quarters has brought with it potential headwinds for the pork export outlook. A stronger dollar against the Mexican peso and Japanese yen makes U.S. pork products relatively more expensive for consumers in those countries. Coupled with record-high Brazilian production and a historically weak Brazilian real, the pork export market is not without its own share of challenges in 2025.

Feed Outlook

The slide in feed costs over the past 12+ months has been a welcome change for an industry that endured steep financial losses throughout much of 2022 and 2023. In large part due to the pullback in corn and soybean meal, producers’ costs of production have fallen significantly. Domestic corn ending stocks are projected similar to a year ago, which was a post-Covid high. Domestic soybean ending stocks are expected to increase for a third-straight year to reach their highest level since 2019/20. While feedstuff supply appears ample for the time being, will this continue moving throughout 2025?

After a near-perfect growing season throughout much of the Corn Belt, soil moisture conditions throughout the Midwest are beginning to show some signs of stress. Mother Nature will always have the final say on crop production potential and July temperatures and precipitation tend to have the largest impact on yields. While drought conditions across production areas is not a huge issue today, it is worth watching as we make it through the winter months and soon focus on spring planting intentions.

Figure 4. Drought Monitor Map

Corn export total commitments remain robust for this time of year even without China booking any product (although prior to the end of the 2019/20 marketing year they were usually largely absent). Soybean export commitments have climbed closer to average levels for this point in the marketing year over the past several weeks. How major trading partners, including Mexico and China, respond to potential tariffs remains a large unknown in the marketplace.

Much of the global crop discussion is rightly focused on South American production potential, which is looking at a record soybean crop and a near-record year for corn production. Absent a major supply shock at this point in the growing year, global corn production is projected to be near-record high and global soybean production will be significantly higher than any year in history. Despite the large crops, major exporter corn ending stocks are projected to be at their lowest level since 2011/12. While the futures prices remain near historically low levels, any sort of disruption to the current balance sheet could make an already tight exporter corn stocks situation even tighter.

Figure 5. Major Exporter Corn Ending Stocks

Hog Profit Margins

Many producers seem optimistic about the year ahead and the prospect of continually improving profit margins. Optimism is a virtue and there are plenty of positive forces at play in the current hog margin outlook. However, we know that things change quickly and without warning. As such, our clients have been scaling into coverage throughout the next year. They have also been making adjustments to existing coverage they had in place to roll up lean hog floors closer to current market prices. Every producer’s costs of production (feed and non-feed costs) and pricing mechanisms for their hogs are different. Risk tolerance will also vary from farmer to farmer based on their own operation’s goals and cash flow considerations. That said, the graph below displays margins for a demonstration hog operation throughout 2025.

Figure 6. Rolling 4 Quarters Margin Chart

As you can see on the far-right side of the graph, calendar year 2025 hog margins (12 months combined) for this operation are at the 98th percentile of historical profitability over the past decade. Based on this demonstration operation’s costs of production and lean hog prices as of Friday’s close, open market hog margins for the entire next year averaged $13.00 per hundredweight. The only time in the past decade this operation would have had the opportunity to protect more favorable margin levels for the succeeding 4 quarters was during the flurry of Chinese pork purchases as they were in the depths of African Swine Fever.

The open market margin outlook over the next 4 quarters is historically attractive and significant risks exist beyond the pig farmer’s control. Structuring margin coverage will vary from producer to producer, but it generally makes sense to address both feed and hog risk simultaneously. Today’s historically high margins can rapidly deteriorate from a decrease in hog prices, an increase in feed costs, or a combination of the two. While we may not want to remove all participation in better margins, it could make sense to remove at least a portion of the exposure to lower margin outcomes.

The next year brings with it both opportunities and continued risk for pork producers. A proactive risk management plan can help navigate uncertainties while capitalizing on opportunities. Contact us to learn more about strategies to take advantage of what the market is offering and take control of your bottom line. Best wishes for a productive and prosperous 2025.