Seasonal Factors Drive Pork Prices in the Near Term

Pork Cutout Declines as Supply Availability Seasonally Increases and Holidays Cause Scheduling Issues at Pork Processing Plants

The pork cutout on Friday was quoted at $89.92/cwt, down almost $5/cwt compared to the previous Friday. Lower prices for loins, picnics and bellies contributed the most to this decline.

The decline in the value of pork bellies had the biggest impact given the sheer drop in value and also because this has been the highest value primal. On November 12, the belly primal value was quoted at $152/cwt, with the rib primal being the second most valuable primal at $133/cwt. However, by last Friday, the belly primal had dropped almost $30/cwt or 19.4%.

Since late September, the pork belly primal is down 41%, accounting for about half of the drop in the value of the pork cutout since that period. While these price declines may have come as a surprise considering all the talk of escalating retail price inflation, current price levels are actually very much in line with the downward trend in pork wholesale prices since early October.

The thing to always keep in mind is that retail prices will tend to lag the wholesale market. The big drop is also par for the course for a market that has seen higher than normal daily price volatility. This is a topic we have discussed previously, a function of the wider than the normal spread between bone-in and boneless products and the day-to-day availability of subprimals in the open market.

More broadly, market participants need to recognize some of the seasonal factors at play, especially the short-term impact of holiday disruptions. Hog slaughter has a significant seasonal component, with hog supplies usually hitting the annual peak in early December.

Hog slaughter last week was estimated at 2.635 million head. While this was 3.4% lower than a year ago and down by almost 5% compared to the same week in 2019, it was still about 180-200k head larger than in late August.

The holiday-shortened slaughter this week means that hog producers were very aggressive in pricing hogs last week. This is usually the case ahead of most holiday-shortened weeks, but it is especially important this year considering producers are behind in their marketing.

The average weight of producer-owned barrows and gilts (5-day avg) is currently running at 216.5 pounds (dressed weight). This is 1.6 pounds or 0.8% higher than a year ago and in 2019.

Since early October, the weights of producer-owned hogs have increased by five pounds, a faster pace than in any of the previous five years for this period. The reason for this is not due to an oversupply of hogs. Rather, it is due to the fact that packers have struggled to run at full capacity.

In October, Mon-Fri hog slaughter averaged 475,934 head/day, 2.1% lower than in 2020 and 2.4% lower than in 2019. Saturday slaughter averaged 204,998 head/day, down 18.5% compared to last year and 19.7% lower than in 2019.

As producers pushed to get hogs scheduled in a timely fashion, cash hog values have come under pressure. Cash hog prices in June and July were trading at a 60-70% premium to pre-COVID levels. Yesterday, the average cash negotiated price (dressed basis) dropped under $57/cwt compared to $59/cwt last year but still higher than in 2018 and 2019.

As we look at the trend of individual primals, what stands out is the decline in the value of loins and bellies. Gains in the value of these two items contributed to the strength in the cutout earlier this fall but they have been pressured lower recently.

It appears to us this is more due to holiday disruptions, filling the meat case with holiday items or scheduling fewer shifts at processing plants. The cutout should once again get a boost from these products in early 2022, as retailers once again fill the meat case with staples and bacon processors start preparing for the demand surge in the spring.

US Pork Export Sales to China Remain Weak but Rebound in Exports to Mexico Continues to Support Ham Values

Pork export shipments to China last week were 4,364 MT, 11.6% higher than the average of the last four weeks but 67% lower than last year.

Some of the lost business to China has been offset by higher exports to Mexico. Shipments to the Mexican market last week were 16,233 MT, 5.9% higher than the four-week average and 35% higher than a year ago.

The reason for viewing the latest export data as somewhat bearish is the continued lack of export demand from China, with net sales last week almost nonexistent. More importantly, there have been no sales to China for delivery in 2022.

Sales to Mexico were quite strong last week at 16,800 MT, 17% higher than the average of the last four weeks. This helps explain the improvement in bone-in ham prices from the high 40s to the low 60s.

Will these strong sales be sustained after the holidays? History shows that for the most part US pork shipments to Mexico in January tend to be well above the annual average. Between 2010 and 2020, January export shipments to Mexico were 9% above the annual average.

This compares with November where shipments were 12% above the annual average and December at 24% above the annual average. Still, we would need to see an improvement in exports to China to view the overall export picture as positive for 2022.

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