Robust fresh pork prices into holiday weekend
May 24, 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.
• Hog slaughter was higher than expected this past week as robust pork prices and modestly lower hog values incentivized packers to run larger slaughter schedules on Friday and Saturday.
• July futures were sharply higher, however, as market thinks packers are pulling some of the supply forward. There will be a lot of interest when USDA publishes its June ‘Hogs and Pigs’ inventory regarding the size of the breeding herd and supply availability in the summer and fall.
• Prices for bone-in hams have declined following a slowdown in export orders. Sales to Mexico are now well below the pace of export shipments. Prices for fresh pork, on the other hand, continue to be supported by holiday retail demand, especially butts and ribs.
• Belly prices have found some stability. Going forward, foodservice demand remains key for this item.
Bellies, trim continue to hold firm as supplies seasonally decline
The sharp rally in pork processing items was a big part of the gains in the value of the cutout and hog prices during March and April. More recently, belly and ham prices have pulled back although they remain significantly above both last year and 2019 levels.
Fresh pork prices seasonally improve in May as retailers get ready for the surge in Memorial Day demand. Since the last week of April, the pork cut out has increased by $10.4/cwt or 9.4%.
All this increase was due to higher loin, butt, and rib prices. The value of the pork loin primal has increased by 18% in the last three weeks, contributing $4.7/cwt to the overall gains in the value of the pork primal.
It is not unusual for loin demand to improve into Memorial Day and packers are able to pass on some of the increase in the cost of hogs. Indeed, packers have faced some margin squeeze recently as spot hog supplies have been tight, especially in the Western Corn belt.
The spread between the pork cutout and the CME Lean Hog Index (our benchmark for hog prices) has been routinely under $5/cwt and during certain days it has been near zero.
Pork butts have also seen significant price inflation in the last three weeks, which reflects the effect of strong domestic retail demand, more robust foodservice sales and strong sales to Asian markets like South Korea that traditionally purchase a significant amount of pork butts.
The value of the pork butt primal last week was estimated at $152/cwt, 32% higher than just three weeks ago. While butts account for just 11% of the cutout, they contributed about a third of the gains in the value of the pork cutout during this period.
Spareribs have also seen tremendous gains in the last two months, driven by the same factors that have been driving price inflation steak cuts and chicken.
Grilling season is now under way, Memorial Day, Father’s Day and 4th of July are key grilling dates in the calendar, and BBQ restaurants are preparing for a big rebound in business.
The value of the pork rib primal is now near $290/cwt, an all time record and 20% from the already lofty levels at the end of April.
Current futures are pricing June and July pork cutout at around $122-$123/cwt, a $5 premium to last week’s prices. There is a fair amount of risk in current futures but it clearly shows that market participants expect the factors driving prices so far to persist in the near term.
Seasonally we see the market for pork ribs slow down after Memorial Day and then decline further at the end of July. But seasonality has not been a good guide in the current environment.
Look at prices for chicken wings, for instance. Normally chicken wings peak the week before the SuperBowl, they stay high during March Madness and then pull back sharply. This year, however, the price of chicken wings now is the highest it has ever been well over $3.20/lb. and climbing.
With steak prices at unheard of levels, ribs may stay well supported for longer than many expect.
Loin prices, however, have more risk as consumers have shown time and time again that demand for that item is far more elastic. But even in that case the retailer does not have a lot of good substitution options.
Ground beef prices have started to take off and chicken breast prices are the highest they have been in a few years.
Finally, the current cutout futures prices reflect the expectation (we think) for higher belly values in the next two months.
The chart below shows the relationship between the value of the pork belly primal with a six-week lag vs. retail bacon feature prices.
Normally we would see bacon feature prices pull back as wholesale belly prices decline. However, in the last 12 months bacon feature prices have been relatively high vs. wholesale prices.
There is some thought that current rise in wholesale belly prices may cause retailers to pull back on featuring bacon. Rather, we think the retailer will continue to feature bacon during time periods when consumer demand is good (summer holidays, fresh tomatoes season).
Indeed, recent pullback in wholesale belly prices may offer the retailer the opportunity to cover summer needs.