Pork Supply Now and Fall 2021

August 16, 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

• Hog futures have been volatile in the last two weeks as producers look to get some downside protection given the heightened risk from African swine fever (ASF). Funds are also less certain about the market and have tried to scale back their positions.

• There is a lot of conversation in the U.S. as to what happens if ASF enters Puerto Rico and if this will cause the United States to lose its ASF-free status. This presents significant risk for U.S. pork exports and prices.

• In the near term, pork prices remain very firm and are bolstered by retail demand going into the Labor Day weekend. Processors continue to have staffing problems, resulting in a big difference between boneless and bone-in product.

• Hog slaughter last week climbed over 2.4 million head and combined with the slowdown in exports to Mexico it resulted in significantly lower prices for bone-in hams. Boneless hams, however, remain firm.

Download Detailed Price Summary and 6-Month Forecasts

Hog Supply Situation in the Spot Market and Expectations for Fall

Hog supplies have been tight for the last few weeks, which combined with a tight labor supply, has exacerbated price pressures in the wholesale market. That will start to change in the next few weeks.

USDA estimates that hog slaughter last week was 2.415 million head, 5.7% lower than a year ago. In the last four reported weeks, hog slaughter has averaged 8.4% lower than last year. This appears to be a huge decline in supply but, as the chart below shows, a big part of the reason why the numbers are down is because they were artificially high last year.

Slaughter disruptions in April and May 2020 created a backlog of hogs that took some time to work through. Comparing hog slaughter to last year will confirm the belief that hogs are not there, but also lead to wrong conclusions about the market. It would be better, in our view, to measure current slaughter against both 2019 inventories and 2019 slaughter.

During the last four weeks, hog slaughter has averaged 2.344 million head/week compared to 2.387 million head per week for the same stretch in 2019, a decline of about 1.8%.

The June USDA Hogs and Pigs report suggested on June 1 there were 28.6 million hogs weighing over 120 pounds compared to 27.4 million hogs in that category in 2019. This would imply an average increase of about 4.3% during June, July, and early August.

Using weekly data, we calculate that hog slaughter since the first week of June through the first week of August was 22.651 million head, down 3.5% compared the same period in 2019. When adjusting for the Memorial Day mismatch in these two periods, we calculate that slaughter so far is running about 1.9% lower than in 2019, a significantly different number than what the June survey suggested.

Hog slaughter should trend higher in the next three months, but it very likely will remain well below 2019 levels. The question is whether the mismatch with 2019 numbers will change as we go into September and October.

One reason for the mismatch in June and July could be that producers may have not marketed hogs as aggressively. Weights of producer-owned hogs were higher in July when normally they decline, so there may be some of that going on.

Still, the inescapable conclusion is that the June survey was off and there are fewer hogs on the ground than many expected. The decline in hog availability has been further exacerbated by a lack of labor to trim/fabricate pork cuts.

As a result, prices for boneless products and trim have been significantly higher than expected, bolstering the overall value of the cutout. High prices for competing products (beef trim, chicken trim), strong demand for less expensive protein, and processors caught short have all contributed to the runaway trim market recently.

Ham primal value last night traded about 20% higher than the value of 23-27# hams, suggesting that higher prices for boneless hams and trim are bolstering overall cutout values.