Pork Prices Decline On Weaker Exports, Demand Rationing Prices
October 25, 2021
Profit Maximizer Report
Steiner and Company produces the National Pork Board Newsletter based on information we believe is accurate and reliable. However neither NPB nor Steiner and Company warrants or guarantees the accuracy of or accepts any liability for the data, opinions or recommendations expressed.
Highlights
• The supply of pork in cold storage at the end of September was 466.4 million pounds, only slightly higher than a year ago and 20% lower than a year ago.
• Sow slaughter has declined in each of the last six months, suggesting that the breeding herd liquidation that started in early 2020 may have come to an end.
• Pork slaughter continues to run about 3% below last year but we think weights have increased at a faster pace than normal, bolstering production.
• There continues to be a wide disparity between bone-in and boneless products, reflecting the limited labor supply and high labor costs. Boneless ham prices are now trading about four times higher than the price of bone-in hams, when normally the multiple would be around two.
• Belly prices were also lower last week, which is not unusual for this time of year. Increasing pork supplies and a slowdown in retail demand tends to pressure belly prices this time of year. Belly freezer inventory at the end of September was the lowest on record, which will continue to support belly prices in the next three months.
• Pork trim prices have also pulled back due to softer seasonal demand and lower prices for competing products.
Decline in Sow Slaughter and Softer Export Demand Bodes Well for Domestic Pork Supply Availability in 2022
Below we discuss the slaughter trend for breeding stock in the hog and cattle industries. In the case of hogs, we think sow slaughter has returned to the levels we saw pre-COVID. This would imply that the liquidation of the hog breeding herd has come to an end although it is early to say if the breeding herd will start trending higher. Much will depend on gilt retention this fall and winter.
Sow slaughter for the month of September was estimated at 251,900 head, down 8.8% compared to the previous year.
Sow slaughter has been lower than the previous year for the last six consecutive months. However, comparisons to a year ago are skewed by the stress that COVID conditions put on producers, forcing some of them to liquidate their breeding stock. Sow slaughter in September was slightly higher than in September 2019 on a slaughter day adjusted basis.
The chart above shows the ratio of quarterly sow slaughter vs. the hog breeding herd inventory at the start of the quarter. One can observe the liquidation that took place in late 2020 and first half of 2021, with the ratio jumping over 13% compared to 12% average from 2014 through Q1 of 2020.
The low ratio of sow slaughter to the breeding herd suggested producers were holding on to their sows a bit longer while at the same time adding gilts to the herd, resulting in a steady increase in the breeding herd. Between 2014 and the end of 2019 the hog breeding herd increased by 576,000 head or 10%.
During the Jun-Aug quarter, sow slaughter was 773,700 head, implying a 12.4% ratio to the June 1 hog breeding inventory. This suggests that hog breeding herd liquidation has come to an end.
Given the decline in slaughter during September and early October data, we currently are projecting sow slaughter for the Sep-Nov period at 751,000 head, which would result in a ratio to the September 1 inventory of 12.1%. This is close to the pre-COVID average.
Slaughter sow prices have declined from where they were in August, but they remain about double last year’s levels and over 50% higher than the five-year average. This does not suggest producers are liquidating sows, at least in the near term, despite high feed costs, export uncertainty and rollout of Prop 12 in California next year.
Cold Storage Update
At the end of September, the inventory of all pork in cold storage was estimated at 466.4 million pounds, steady with a year ago but still as much as 20% lower than they five-year average.
September pork freezer stocks increased by 2.7% from August levels, in line with the average increase in the last five years. High prices for several items limited the amount of product going to the freezer.
Bellies are the clearest example of this, as freezer belly inventory at the end of September was a record low 13 million pounds, 47.5% lower than the already low levels a year ago and 54% lower than the five-year average.
Belly inventories in September declined 26% from August compared to an average drawdown of 13%. With belly primal value above $200/cwt, end users sought to further deplete their stock and saw no rationale for putting product away.
Ham inventories, however, have quickly recovered, in part because lack of labor and a slowdown in exports is pushing more bone-in hams in the freezer. At the end of September, the supply of all hams in the freezer was 193.5 million pounds, 32.5% higher than a year ago but still about 7% lower than the five-year average. Ham inventories in September increased 4% from August compared to an average 6% increase in the last five years.
Inventory of pork ribs remains light at just 54.5 million pounds, 8.3% lower than a year ago and 27.7% lower than the five-year average. End users will likely take advantage of current pullback in prices to bolster their depleted freezer stocks. This is more likely for spareribs as back rib prices remain near historical highs for this time of year.
Price Charts
Forecasts
Weekly Pork Price Summary
USDA prices for pork sub-primals, including butt, loin, ham, picnic, belly, trim, and spareribs.
