Ag prices and trends, both in the U.S. and around the world, affect producers of sizes in all ag commodities. Economist Brett Stuart, founding partner of Global Agritrends, recently presented a review of 2023 and a look forward to 2024, beginning with inflation.

Stuart said political leaders around the world are feeling inflation pressure. Europe is dealing with 14% food inflation, which is leading to political changes.

“The heat is turned up and voters are in the streets with pitchforks,” he said. “World leaders can raise interest, reduce spending and increase taxes – or impose price controls or export taxes.”

One inflationary problem with no easy solution is labor. Wages are increasing but not keeping up with everything else. Increasing wages presents a challenge for employers because when prices go down, companies don’t cut wages.

Indicators for 2024 are mixed, and Stuart said we’ve never had a recession with this kind of unemployment. He added that a recession could last for longer than three years because there’s no good answer for dealing with inflation.

Despite analyzing global ag markets for 20 years, Stuart has never seen what’s currently happening: Australian cattle and sheep have been in liquidation due to dismal prices and negative margins. After three years of drought, the U.S. beef cow herd has shrunk 9% and expansion hasn’t begun yet. U.S. hogs have seen financial losses in nine of 11 months, and American poultry processors are losing money.

Brazilian cattle markets affect the worldwide beef supply, and Stuart estimated slaughter in there will be down 11% by 2026. Chinese hogs have had disease issues coupled with weak demand and oversupply, leading to herd liquidations.

Cattle producers are familiar with the U.S. beef herd’s ebb and flow cycle based on profitability and sometimes extended by drought. “Calf prices have been through the roof,” said Stuart, noting the effects of three dry years. “We’ve now shrunk the herd 9% in five years. We’re going to continue to liquidate, and 2024 and 2025, and maybe even 2026, will be smaller. When this herd is the smallest, profitability is enough that people start retaining heifers. When heifer calves are out of the system, supplies are tighter, and we’ll see record-high prices.”

He explained the recent meltdown in cattle markets. When the drought continued, cattle producers pushed cattle into feedyards. “Heavy placements in September and October took the steam out of the cattle market,” he said. “A lot of cattle feeders were buying calves in August and September at record-high prices, and those calves are in a feedlot and worth far less next June. Those who hedged might be intact; those who didn’t hedge when they bought calves might be in trouble.”

What’s behind, what’s aheadFeed costs are the basis of price fluctuations, and even though corn is down from last year, there’s time between harvest and when new corn is in rations.

Mexico and Canada, both major cattle producers, suffered low rainfall this year. Mexico is the biggest corn importer of the U.S., and their cattle, hog and poultry producers are in trouble.

“Even though the [Mexican] president says ‘We’re going to ban genetically modified U.S. corn,’ they aren’t going to ban it this year,” said Stuart. “They depend heavily on U.S. corn and that threat would end their livestock industry.”

China has half of the world’s hog population, but in 2018, they were hit with African swine fever (ASF). In 2019, China liquidated two-thirds of their swine herd. Chinese farmers who lose money don’t own a farm to leverage to feed pigs.

“The government owns the land and you have a lease, so your liquidity options are very limited,” said Stuart. “This leads to a cyclical pattern. When farmers lose money, they liquidate hogs, the herd shrinks and prices go up.”

Stuart predicted some of the biggest hog companies in the world (the larger farms in China) will see major financial stress in the first quarter of 2024, and it’s unclear whether the government will bail them out. Large hog farms account for about 35% of China’s hog industry – the rest are medium and small farmers affected by the same cyclical trends.

The number two hog base is Europe. “Every major producer declined in 2022,” said Stuart. “Germany was a pork powerhouse but is down 18%, and Denmark is down 14%. Those are big pork exporters. The Ukraine war disrupted energy supplies and caused electric bills to skyrocket.”

And new animal welfare rules and climate management policies further disrupted livestock production.

“Everything is about climate policy,” said Stuart. “They know they’re going to shrink their livestock sector and reduce fertilizer usage, but they’re okay with that. We’re going to see some big changes in Europe as a structural decline leads to a major drop in EU pork exports. The EU is the biggest competitor of the U.S. worldwide and are now at half of what they shipped at their peak in 2021.”

The Netherlands has a goal of cutting livestock production and fertilizer usage in half to meet climate goals. New Zealand has passed a law stating that in 2025, cattle owners will receive a bill from the government. However, a political coalition in New Zealand claims to have the power to overturn this ruling.

The fad of vegetable-based protein won’t likely impact the protein market. Stuart said 2019 was the “fever pitch” year for the alt protein movement, but those who invested heavily in that market have seen stock decline sharply. Some companies are on the verge of collapse.

“That tells me it was a flat-out rejection by consumers,” he said. “You need to be careful when you say ‘I know what consumers want,’ especially when there’s a political slant and imposed on people ‘because it’s the right thing to do.’”

Stuart added that there will be a continued niche for alt meat products but believes such products will never take over.

Global demand for animal proteins is stable and has been growing since the 1960s. “The world needs and wants more protein every year,” Stuart said. “Supplies are tight and demand is higher, which means we’ll see prices improve in 2024. We’ll see the global protein industry eventually become profitable because we’re restricting supplies to a world that wants more beef, pork, poultry and seafood.”

Fortunately, agriculture is quick to adapt to changing environments. “Sticky inflation (wages and consumer prices that don’t respond quickly to changes in demand) is going to stay,” said Stuart. “Global protein supplies are tightening and that suggests higher prices and profits in the future for those who can endure the present. It’s all about feed costs, inflation and weather. I think 2024 is going to see some good corrections and opportunities in global agriculture.”

by Sally Colby