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.
- The market remains highly uncertain. Bellies have been and continue to be a major drag for the wholesale index, accounting for about half of the decline in wholesale prices. With large inventories and expected lower California demand, the price upside risk for bellies is lower than in previous years.
- Enforcement of Prop 12 law in California will commence in July but California officials are saying that product already in inventory will continue to be sold after July 2. This helped bolster futures at the end of the week.
- Retail pork demand has been mixed. Pork shoulder has benefited from the high price of beef, and it is currently trading near a year ago. Pork loins, however, are facing more competition from chicken and are down almost 20% y/y.
Higher Cash Prices and a Bit More Clarity About Prop 12 Helps Futures…For Now
Lean hog futures have been quite volatile in the last couple of weeks. Going into the long Memorial Day weekend, thin volume and lack of any bullish news pushed futures to life of contract lows. Prices have rebounded ever since, in part due to modest gains in the value of the cutout as well as higher prices paid for hogs in the cash market. The average price for hogs in the negotiated market was $86/cwt, up $15/cwt (+21%) in a month. The gains in the value of the pork cutout during this period have been more muted. On Friday the value of the pork cutout was $85/cwt, $4.5/cwt (+5.3%) in a month. A document released by the California Department of Food and Agriculture injected some optimism towards the end of the week. The document clarifies that “current inventory is transient and as purchases of compliant products begin to be made after July 1, 2023, pork products in current stocks will eventually be cleared from freezers and retail stores in California.” Until now there was a lot of confusion as to whether retailers could sell product that was bought and in storage prior to July. Additionally, the document states that “for the remainder of 2023, we intend to focus our limited implementation resources, not on covered products already in commerce.” This should stop the inventory drawdown that many end users were doing and help normalize trade going into the 4th of July.
Even as the recent clarification from the CDFA may help stem the selloff in summer futures, there is little question that the restrictions imposed by California and Massachusetts will have a material impact on pork demand in those states. Some pork that complies with the rules in place is currently being offered to distributors and retailers but at prices that are dramatically higher than current market. We see this significantly impacting lower income consumers in these states. While Whole Foods and similar stores already have supply that meets California requirements, retailers that serve consumers with lower incomes will struggle to find product that they can sell. Given the price spreads between compliant and non-compliant pork, there is a real risk of a black market developing in some areas.
In the near term the main issue that continues to negatively impact the pork market is the extreme weakness in the value of pork bellies. On Friday the pork belly primal value was $78/cwt, 51% lower than a year ago. The decline in the value of the belly primal accounts for about half of the overall decline in the cutout. At the end of April, there were about 81 million pounds of bellies in cold storage, 39% more than a year ago. Processors drawing down this inventory while at the same time coping with the expected decline in demand from CA and MA has wiped out the seasonal price improvement we see during this time of year.
Fresh pork sales have been mixed, with butts and picnics performing relatively well. The value of the butt primal on Friday was 4.9% higher than a year ago and the value of the picnic primal was down only 1.6%. We think the high price of beef at retail has helped bolster the price of these items. Loins, however, continue to struggle. Inexpensive chicken continues to be a significant drag for this item. Last year the high price of chicken breasts helped bolster loin values in June and July. The opposite is the case this year. Boneless/skinless chicken breasts are plentiful and inexpensive. Last year the average price of b/s breasts at wholesale in early June was over $350/cwt compared to around $145/cwt currently. The value of the loin primal on Friday was $89/cwt, down 19% from a year ago.
In the near term the pork industry is looking to adjust to both the overall slowdown in retail demand and the expected disruptions caused by the enforcement of Prop 12 and Question 3 laws in CA and MA. Pork exports will be higher this year although demand from China remains underwhelming. Overall, it appears that pork will remain a great value for retailers this summer and fall.
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.