Steiner and Company produces the Profit Maximizer report on behalf of National Pork Board 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.
- Pork cutout futures continue to signal lower wholesale prices for the spring and summer as demand eases lower following the COVID-related spike in 2021 and 2022.
- Hog slaughter was close to 2.5M head again last week as producers sought to get caught up following winter weather disruptions in February.
- Wholesale prices have been trending higher on robust prices for hams but also higher prices for fresh pork products, especially loins and butts.
- It is normal for ham prices to be higher in early March as processors work to fill Easter orders and export demand improves. Ham prices may stabilize somewhat in early April but the outlook is for prices to trend higher in Q2 due to seasonally lower slaughter and demand from the Mexican market.
- Pork belly prices remain well below year-ago. Ample freezer inventories should keep prices in check for a bit longer but we think prices should move higher in May/Jun and peak during the summer months.
Domestic Pork Supplies Remain Plentiful, Bringing More Attention to Demand Going into the Spring
- We estimate per capita domestic pork disappearance in 2023 to be 0.2% lower than the previous year.
- Despite the lower supply, pork wholesale prices for all of 2023 are currently forecast at $97.5/cwt, 6% lower than a year ago.
- Demand was especially strong in 2021 and 2022, in part due to the post COVID rebound in sales at foodservice. Our current assumption is for demand to return to its long run trend.
- Despite forecast for lower prices, there is more downside risk if the economy goes into a recession.
- Price performance will depend greatly on the product. Belly prices are expected to rebound but ample freezer inventories and slowdown in foodservice demand is expected to keep prices well below year ago levels.
- Fresh pork should be seasonally higher in Q2 but below year ago levels.
So far, the first quarter has been somewhat of a wakeup call for pork producers and pork buyers alike. The pork cutout through the first week of March averaged $82.4/cwt, down $18.3 (-18.2%) compared to first quarter of 2022. The decline was mostly due to lower prices for pork bellies but also a 15% decline in the value of the loin primal and 28% decline in the value of the rib primal. The decline in those two primals subtracted $6/cwt from the value of the cutout in addition to the $13/cwt decline due to lower belly prices. Higher than expected slaughter and large inventories of bellies accumulated in the freezer last year have kept belly prices in check so far this year. At the end of January USDA put the supply of bellies in cold storage at 70.1 million pounds, 57% higher than a year ago and 43.5% higher than the five year average. Normally belly inventories increase during winter and early spring as demand falls short of available supply. We expect total belly inventories by the end of April to be near 75 million pounds, about 33% higher than the five year average. The large supply of bellies should help keep belly prices in check during May and June but we think that eventually freezer inventories get depleted and there is more upside risk for bellies in July and August. Still, the average value of the belly primal for all of 2023 at $136/cwt is expected to be 14% lower than the previous year. This remains a key drag for the overall cutout
As the first chart shows, during the last major recession pork demand was sharply lower, reflected in part in weaker belly values during that time. We think bacon demand has become more resilient in the past decade but this segment of the market remains vulnerable to a downturn in foodservice demand.
Other pork items are expected to perform well at least through Q2. Fresh pork has become highly competitive with beef and chicken at wholesale. Loin, butt, and rib values are expected to trend higher in Q2 but still fall short of the levels achieved in the previous two years. Consumer spending has slowed down and that trend is expected to continue into the spring and summer. But note that even as we see demand slowing down, it is still in line with the long-term trend rather than a deep recession scenario. We would be more concerned about the outlook for consumer spending and general demand if the unemployment rate was higher than it is currently.
Conclusion: We think the slowdown in consumer spending will be enough to bring demand down from the lofty levels achieved post COVID. As for export demand, it only appears indirectly in the chart in the form of domestic disappearance. If exports increase, then it would reduce domestic supply availability, implying higher prices as we move to the left of the demand curve.
Steiner Consulting Group 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.