Global Livestock and Poultry Under Pressure

Weather, disease, and financial margins provide the signals for livestock expansion and contraction globally. Weather plays a key role in determining cattle and sheep inventories as they are grazers. Swine and poultry flocks and herds ebb and flow based on disease issues and margins; feed costs are the key driver of margins.

As we turn the calendar into 2024 a true anomaly is occurring. A significant proportion of the global livestock and poultry production bases are in, or moving into, herd/flock liquidation. In 20 years of global meat and livestock   analysis, I have not seen a similar situation as what we have today.

Here’s where it’s happening:

China’s swineherd is in one of the most prolonged financial downturns in history with farmers losing money 20 of the past 24 months. Current losses deepened to US$50/head last week. Large and small producers face difficult  decisions as borrowing options are very limited. Historically, losses of this level spur liquidation, and we believe that has begun in China.

Europe is the second largest swine base on earth but has seen its sow herd drop -18% over the past 10 years       (-34% over the past 20 years). The herd likely shrunk by 8% this year, with the EU Commission forecasting further herd reductions each of the next 10 years. Reasons include energy and feed cost inflation, as well as animal welfare and climate policies. This appears to be a long-term structural decline.

Swine margins in North America have been negative for most of 2023. Smithfield Foods has partially completed a planned sow herd liquidation that could top 90,000 head. Hog farmers, both large and small, are facing serious    financial strain with little hope in sight until seasonal price increases next summer.

Poultry margins have been negative most of 2023 as well in the U.S. Tyson foods has announced the closure of 8 poultry processing plants this year. Egg sets turned negative in Q3 due to prolonged negative margins.

Cattle herds have shrunk in key regions. From the recent (10 year) peak to 2024 estimates, the reductions are significant: U.S. -11%, EU -14%, Canada -10%, Argentina -6%, Australia -4%, and New Zealand -4%. USDA    forecasts Brazil’s herd up +3% from 10 years ago. These declines are due mainly to drought patterns in the U.S. and Australia, but are driven as well by climate policies in Europe and elsewhere.

Key factors:

Drought: These patterns ebb and flow. After 3 years of a La Nina weather pattern that brings drought to North American and rain to Australia, we saw a quick flip to the opposite El Nino pattern in 2023. But forecasts now show a quick flip back to the La Nina pattern by mid-2024.

Inflation: Surging feed, energy, land, and labor costs have yet to reconcile back to positive margins for most swine and poultry producers. And these rising costs threaten beef cow expansion when weather and market conditions return. Labor shortages remain the real problem with no solution, an inflationary pressure on labor and wages for years to come.

Recession: China’s economic slowdown saw falling import prices for the world’s largest importer in 2024. Japan and Korean economies remain under pressure as well. The U.S. economy likely faces a reckoning in 2024 as inflation continues to erode earnings, combined with high interest rates. We foresee a modest global economic correction in 2024, with persistent inflation remaining a concern over the next 3-5 years.

~ Brett Stuart