Low Inventories and Limited Supply Underpin Pork Prices
March 1, 2021
Profit Maximizer Report
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Weather disruptions cause shortfall in supply, higher prices for a number of items.
• Pork prices last week remained elevated as packers sought to catch up on orders from the previous week.
• Processing items have seen the biggest price increases as demand for those items is very inelastic in the near term. Processors need to deliver against prior sales and with limited freezer stocks, they had no choice but to pay up. The pork cutout was up $14 in February and $11 of that increase was due to higher ham and belly prices.
• US pork freezer stocks at the start of February were down by more than 26% compared to the previous year. Inventory of pork bellies in the freezer was down 56%. Belly production is now going either into formula sales or accumulated in the freezer, with little available in the spot market. Spot trade of pork bellies in the last four weeks is down almost 60% from a year ago.
• Retail items are moving up but at a much slower pace.
Big Gains for Pork Prices
Pork prices have seen big gains, especially for processing items. The value of the ham primal at the end of February was as much as 37% higher than where it was in early February.
Belly prices were up by a similar amount as well. Indeed, the gains in the value of hams and bellies accounted for $11 of the $14 gain in the cutout during this period.
As with beef, the shortfall in pork production exacerbated some of the tight supply problems during February.
The supply of pork in cold storage at the start of the month was estimated at 460 million pounds, down 166 million pounds or 26.5% compared to a year ago.
On a carcass weight basis the inventory was down some 213 million pounds.
Ham inventory on February 1 was 30 million pounds or 26.5% lower than a year ago and pork belly inventory was down 40 million pounds or 56% from last year.
Seasonally belly prices are higher in Q2 and this year the price risk was even more pronounced given hog prices expected to be above $90/cwt and lower slaughter than in 2020.
Foodservice operators depleted the pipeline in December as states imposed more restrictions to control the COVID spread.
As the number of cases declined in January and states started to reopen, processors and distributors embarked on the process of refilling the pipeline. This added to the normal demand we see during this time of year.
The average bacon feature price in February was $4.98 a pound, the lowest since May of 2020 and only marginally higher than the $4.95 average feature price a year ago.
Pork production for the week ending February 20 was down 28 million pounds or 5% compared to a year ago.
This caused prices for hams and bellies to escalate as packers prioritized formula business and the supply in the spot market dried up.
Since late January, the supply of pork cuts sold in the spot market has averaged about 7% below year ago.
In the case of bellies, volume traded in the spot market in the last four weeks has averaged 46% below year ago while ham spot volume averaged about 13% above last year.
In the case of hams, it appears that tight inventory situation and fewer days to accumulate hams for Easter remain key factors.
Pork supply in cold storage declined dramatically last year and the improvement in freezer stocks was only marginal in January.
End users have a lot of work to do to get ready for spring, which helps explain why spot wholesale market continues to go bid despite historically high weekly slaughter.
High prices for some products and good export movement have limited the inventory build that we usually see in Q1.
Inventory of all pork items at the end of January was 459.9 million pounds, 26.5% lower than a year ago and 21% lower than the five year average.
Freezer stocks increased by 11% compared to December but that was from a much smaller number than in past years. On average the inventory build in January is 12% vs. December.
Ham inventory was 84.2 million pounds, 26.5% lower than a year ago and 24% lower than the five year average.
Ham inventory increased 57% from December, a faster pace but also starting from a smaller base than in past years.
Easter is early this year and smaller freezer stocks and fewer weeks to accumulate product have caused end users to stay aggressive in trying to source ham raw material.
Belly inventory was 31.2 million pounds, 56% lower than a year ago and 36% lower than the five year average.