Labor, Exports Remain Key Wild Cards for Pork Prices This Winter
October 11, 2021
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• Pork export volume down slightly in August even as exports to China are only half of what they were last year. Robust exports to Mexico have helped offset the loss of exports to China.
• Wholesale pork prices came under some pressure late in the week as weekly slaughter increased by 80k head from the previous week. However, we continue to see a big price spread between boneless and bone-in product. This is due to the additional labor needed to bone and trim muscle cuts.
• The price of 72CL pork trim has declined compared to summer, in part because slaughter currently is as much as 300k head higher than in July and August. However, fat pork trim prices remain historically high as packers are not trimming as much product as they used to.
• Pork exports in August were only slightly lower than a year ago even as exports to China have been cut in half. So far, higher exports to Mexico have offset the decline in Chinese demand.
• Belly prices are expected to pull back in November while ham values will be volatile, reflecting weekly export demand.
Latest Jobs Report Is a Reminder That Supply Bottlenecks May Persist Longer Than Many Expect
There has been a lot of press coverage of the latest employment report, largely because the economy added only 194,000 new jobs in September, half of what was expected. This, even though in July there were over 10 million job openings.
Coming into the report, many economists, us included, thought that the start of the school year and the end of extra unemployment benefits would bring more people back into the labor force.
Instead, the labor force in September declined by 183,000. The participation in the labor force declined as well, from 61.7% in August to 61.6% in September.
Recently one of the biggest meatpackers, Smithfield Foods, held a hiring event at all 45 of its locations across the US. This was the second such event so far this year inviting people to walk in and apply, offering a $3,000 hiring bonus to most new hires.
The company has also quietly worked with unions to increase pay and benefits although details of labor agreements are scarce. Back in June, workers at one of its biggest pork processing plants threatened to strike but a new agreement was quickly reached.
Other packers have also bolstered pay, with Tyson and JBS raising wages between 25% and 30%. These pay increases as well as higher costs for transportation and logistics, packaging and energy will continue to filter into the cost of goods.
Prices for beef, pork and chicken have taken a bit of a step back in recent weeks but they remain significantly above year-ago levels. While seasonal factors will have some impact on pricing, we continue to see significant raw material price inflation into 2022, in part due to the overall inflationary trends in the economy at large.
Products that require extra labor, for deboning, trimming, etc, will continue to command significant premiums as packers struggle to staff production lines. This has resulted in significant volatility, something we discuss in the next section.
August Export Update
The latest trade data confirmed what we were already expecting based on weekly shipments. Pork exports to China in August were sharply lower compared to a year ago, but they were offset by higher exports to Mexico.
August US exports of fresh, frozen, and processed pork were 179,359 MT, just 1k MT or 0.6% lower than the previous year.
Pork production in August was 5.4% lower y/y, and when adjusted for the extra production day this year, pork output was as much as 10% lower than last year. In this context, August exports were indeed excellent.
Exports to Mexico were 68,949 MT, 22,487 MT or 48% higher than a year ago. The volume exported was up despite double-digit wholesale price inflation. The value of US pork exports to Mexico in August was $138.9 million, 111% higher than the previous year.
Shipments to Mainland China were 18,662 MT, down 19,861 MT or 51.6% compared to a year ago. The value of US pork exports to China was down 52% as well but the value of pork exports to other markets was significantly higher.
So, even though August pork export volume was slightly lower than a year ago, the value of US pork exports in August was almost $80 million or 18% higher than a year ago. Through August, the value of US exports of fresh/frozen and processed pork was $4.769 billion, about $32 million higher than a year ago and over a billion dollars higher than the same period in 2019.
This is an important consideration when we look at the impact of export demand for the industry. Variety meat exports so far this year have amounted to $650 million, $18 million or 39% higher than a year ago.
In August, the value of variety meat exports was $83.4 million, with China sales accounting for almost $60 million. Overall, we thought August pork export data was excellent despite the decline in exports of pork muscle cuts and trim to China.
Weekly Pork Price Summary
USDA prices for pork sub-primals, including butt, loin, ham, picnic, belly, trim, and spareribs.