Seasonal Supply Lows Are Here

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Pork Cutout Rallies on Higher Belly & Ham Prices. Will the Rally Carry into the Fall?

Hog slaughter the last two weeks has been running below year ago and USDA has been revising lower some of the slaughter reported previously. For the week ending July 18 slaughter was estimated 2.296 million head, 1.6% lower than a year ago and for week ending July 25, the most current estimate is 2.268 million, 2.4% lower. It is not uncommon for plants to schedule dark days around this time of year, addressing maintenance issues when high temperatures impact hog movement and performance. Plants will work six days a week in the fall, making this the right time for maintenance. The shortfall in production, combined with the seasonal decline in carcass weights, has significantly impacted product availability. Processing plants work five days a week and suddenly availability has materially changed, resulting in tight spot supplies/higher prices for key processing items, like hams and bellies.

While the supply side is supportive, especially in the near term, some of the factors that negatively impacted bellies, hams and other pork items have not gone away and may temper some of the bullishness. Indeed, despite the lighter slaughter last week, ham and belly prices remain well below year ago levels. And as we have noted in previous updates, it is important to consider the entire carcass, with loins, shoulders and ribs accounting for more than half of it. The lack of movement in those primals despite the decline in slaughter is worth noting. The loin primal last week averaged $90.8/cwt, 9.3% lower than a year ago, while the butt primal was down 5.9% and picnics were down 24.5%. Ribs continue to perform better than a year ago, but they are a relatively small part of the carcass and have also been trending lower, with more downside expected once Labor Day features are covered.

Bottom Line: tight supply should continue to underpin the pork cutout in the near term, but demand headwinds for fresh pork remain, further amplified by high temperatures. One factor that we do not think has been appreciated enough is the negative impact that reduced SNAP funding is having on retail sales, especially low-cost protein like pork and chicken.

Cold Storage

The inventory of all pork in cold storage at the end of June was estimated at 458.2 million, 9.4% higher than a year ago.  In the last 20+ years, pork inventories at the end of June have averaged around 6.4% under May levels.  This year June inventory increased 0.7% from the previous month. The inventory of ham in cold storage at 143 million pounds was 29.2% higher than a year ago and increased 12.9% from the previous month.  Belly inventory at 52.2 million pounds was 18.4% higher than last year.  The supply of other pork items is now running above year ago.  Boneless loins were up 5.2% y/y and the highest inventory since 2019, spareribs were up 3.3% and pork butts were up 8.8%.

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