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.

Highlights

  • Market has become somewhat disjointed. Futures are at contract lows and the wholesale price index has been steadily declining for the last two months. However, not all pork prices are down. Loin prices continue to hold up and brisket bones have been steadily moving higher.
  • Lower prices for processing items (hams, bellies, trim) have been the main contributors to the decline of the pork cutout. Pork supply is seasonally higher (+15% since July) and there is little desire on the part of processors to put product in cold storage. Slaughter is expected to be heavy for the next 6 weeks and hog carcass weights will continue to increase. For now, buyers seem content to sit on the sidelines.
  • Lower turkey prices may be affecting ham sales. Last year whole turkey prices were at record levels as millions were destroyed to prevent the spread of HPAI. Current turkey prices are as much as 40% lower than a year ago.

Full Report

Hog Futures Retreat On Ample Supply And Weaker Than Expected Prices For Processing Items.

Lean hog futures have been steadily losing ground as market participants react to trends in the product market and reassess assumptions for both supplies and demand at the end of the year and into 2024. On Friday the nearby December contract was down another 200 points and closed at contract lows of $66/cwt. That’s $15/cwt (-15.6%) lower than where December futures were trading a month ago. On the supply front, the number of hogs coming to market remains above the baseline projection from the USDA ‘Hogs and Pigs’ report. USDA estimated the pig crop for Mar-May up 1% y/y, with the various categories of market hogs all under 1%. Weekly slaughter during September and so far in October has been about 1.5% higher than a year ago, with slaughter in the last four weeks up 2.3% y/y. During the last few weeks hog carcass weights have increased at a faster rate than they did last year. Since the beginning of September carcass weights for all barrows and gilts coming to market (USDA-AMS data) have increased 2.7% compared to a 2.0% increase for the comparable period a year ago. Barrow and gilt weights remain about 1.2% under last year’s levels, which has largely offset some reduction in slaughter. However, there is no escaping the fact that there is substantially more pork coming to market today than what we saw in in July and early August. Consider that since then hog slaughter is up about 300k head (+13%) and weights are up about 5 pounds (+2.4%).

The seasonal increase in slaughter and weights implies a +15% increase in pork supply, hence the downward pressure on prices as reflected on the cutout chart on page 1. One note about the chart is that we have routinely in the past included 2017 rather than 2019 as a comparison. The reason is that per capita availability in that year as close to what we have this year than in 2019. As for 2020, for the most part we leave it out of the comparisons due to the disruptions creased by COVID. So far the trend in the value of the cutout is similar to the two years but prices remain below the levels registered the last two years eve as supply is at or below those levels.         

Product demand appears to have normalized following the sharp spike after the COVID outbreak and as we examine current primal values vs. a year ago, one item stands out – hams. The value of the pork cutout on Friday (10/20) was estimated at $87.97/cwt, down $13/cwt (-13%) compared to a year ago. More than half of the decline in the value of the primal is due to lower prices for hams. The ham primal value on Friday was estimated at $83/cwt, $27/cwt (-25%) lower than a year ago. Ham prices are always critical for the cutout during Q4 as holiday demand helps bolster the movement of this product and supports the overall cutout. But as the chart to the right shows, last year prices paid for ham reflected exceptional demand due in part to lower supplies and higher prices for whole turkeys. While there have been a few cases of Bird Flu recently, the turkey situation has changed significantly, reflected in the wholesale whole turkey market with prices around $125/cwt vs. $185/cwt a year ago. Export sales have improved and are higher than a year ago but that is more a reflection of the lower prices.

The second primal that has seen a notable price decline compared to a year ago are bellies. The latest USDA report put the value of the belly primal at $105/cwt, down $35/cwt (-25%) vs. year ago. Fresh pork prices continue to move lower but largely in line with last year’s trend. By the end of 2023 CA will require third party verification. Will this further impact fresh pork values that so far have held up vs. 2022? This question adds to uncertainty about pork prices later in the year and in early 2024.

Price Chart

Forecasts

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.