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

  • The USDA ‘Hogs and Pigs’ survey results will be released on Thursday, March 27. We expect only a very modest increase in the breeding herd and hog supply as of March 1 up 1.5% vs. a year ago.
  • Slaughter was lower than expected due to weather disruptions mid-week. The shortfall in production continues to impact processing items, such as hams and pork trim, currently trading well above year ago levels.
  • Fresh pork prices have been relatively stable even as overall production has been less than expected. Sales to key markets, such as Japan, have been slow to develop and that may have impacted loin values to start to the year. High prices for competing proteins, especially ground beef and chicken breasts, are expected to support retail demand for loins in late April and May.
  • Ham prices have been supported to this point by Easter demand. Holiday buying is likely to slow down considerably by the second week of April, creating opportunities for export buyers. Belly prices are expected to drift lower into April, allowing retailers to book features for Memorial Day.

Full Report

The USDA will release the results of its quarterly survey of hog producers on Thursday, March 27. We estimate that the inventory of all hogs and pigs as of March 1 was about 1.5% higher than a year ago, with more market hog supply skewed toward late spring and the summer months. We expect USDA will make some modest revisions to its June–August pig crop but will likely show a 2% increase in the December–February pig crop. This would be driven largely by more pigs per litter and a modest increase in farrowings. As for the breeding herd, we estimate it will be about 20,000 head higher than on December 1 but roughly in line with year-ago levels. Looking ahead, productivity gains—rather than breeding herd expansion—are expected to be the key driver of supply growth over the next 12 months.

Tariff Uncertainty Persists

We have opted to leave our forecasts largely unchanged given ongoing uncertainty around tariffs on Mexican and Canadian products, as well as potential retaliatory tariffs. Futures have pulled back over the last three weeks—due in part, we believe, to the potential for weaker export demand and thus lower ham prices in late spring and summer.

Back in February, June lean hog futures were trading as high as $106/cwt, which would imply a pork cutout value around $110/cwt. That, in turn, suggests a ham primal value somewhere in the mid to high $90s. Currently, June lean hog carcass futures are trading about $9/cwt lower than a month ago, and we believe this is largely due to expectations for lower ham and picnic prices. Presently, nearly half of all ham and picnic production in the U.S. is exported.

Lessons from History

There is good reason for futures markets to be concerned about a potential trade war with Mexico and higher tariffs on U.S. pork products. In June 2018, Mexico imposed a 10% tariff on U.S. pork, which was raised to 20% in July. The charts below illustrate what happened with both export volumes and ham prices during the second half of 2018.

Export volume remained relatively steady in July and August, primarily because domestic supply tends to be low during that time of year, which limits how much can be exported. However, U.S. pork production typically increases in the fall due to a higher number of hogs available for slaughter and heavier carcasses. This seasonal uptick generally supports export volume. The higher tariffs, however, had a significant negative impact on exports in the fall and winter, with volume down by double digits. More importantly, U.S. ham prices declined sharply in the second half of the year, significantly affecting producer returns. Currently, U.S. lean hog futures for October are trading close to where they were a year ago, despite expectations for increased supply. In our view, this suggests that the market has yet to fully price in the impact of prolonged and meaningful retaliatory tariffs from Mexico and Canada.

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.