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

  • Lean hog futures have been volatile in the last three months as market participants try to price the potential impact of tariffs on Mexico and Canada while also recognizing that spot supply is lower than expected.
  • Hog slaughter has been lower than expected, limiting overall availability.  With fewer cuts getting boned, there is less trim (both lean and fat) in the market, pushing prices well past expected levels. Expectations are for trim values to ease a bit in March, but overall trend is higher into spring on seasonal demand improvement and lower slaughter.
  • Belly prices have been volatile, which is common for this item. This product mostly goes into domestic channels and last week it appears a major packer got backed up, resulting in a significant supply of bellies available in the spot market.
  • Ham prices have also been volatile, in part reflecting the order flow from Mexico. Concerns about tariffs caused Mexican buyers to front load orders in late January. In the last two weeks, however, sales to Mexico have been less than 11k MT, resulting in more supply available in the domestic market.

Full Report

Hog futures volatility persists. Futures have been highly volatile over the past three months due to ongoing speculation about the impact of tariffs on Canada and Mexico, as well as the uncertain outlook for hog supplies this spring and summer. Today (Tuesday, 2/25), lean hog futures settled just above $99/cwt, near the lower end of their three-month range. Renewed tariff discussions may have triggered today’s decline, but it’s worth noting that the largest recent drop occurred at the start of last week when the cutout fell $3/cwt and continued to lose ground. Spot cutout trade will likely remain a major factor influencing projections for the CME index and, ultimately, the direction of futures.

Spec funds impact. At the start of the year, managed money held a significant net long position (+92,860 contracts), which has only grown in recent weeks. For the week ending 2/18, the CFTC reported that managed money’s net long position had increased to 111,745 contracts.

While speculative funds don’t determine the final price of hogs—that’s driven by supply on the ground and consumer willingness to pay—they do contribute to volatility as perceptions of risk shift.

Hog numbers remain snug. Hog slaughter last week was estimated at 2.522 million head, approximately 2.1% lower than a year ago. We expect this week’s slaughter to be only slightly higher, as the number of hogs scheduled for Friday and Saturday is about 10,000 head lower than at the same time last week.

If this week’s slaughter reaches 2.53 million, it would imply a shortfall of around 556,000 head (-3.5%) since the last week of January—well below what the USDA Hogs and Pigs inventory survey suggested. While weather disruptions may have contributed to the shortfall, it is more likely a reflection of tighter hog supplies.

Typically, when weather disrupts slaughter, hogs appear in subsequent weeks, and processing slowdowns result in heavier-weight hogs coming to market. That has not been the case this time. Instead, packers are pulling more aggressively on their own supply as producers remain relatively current, and firm, on asking prices.

The average weight of packer-owned barrows and gilts has declined at a faster rate than usual for this time of year. Currently, weights are at levels last observed in June and are 1.2% lower than a year ago.

Lower slaughter underpins product pricing. The pork cutout on Monday was $98.4/cwt, up a little over $4 from late last week and $7.4/cwt (+8.2%) higher than a year ago.   Primal values are up across the board, led by higher prices for bellies (up 16% y/y) and loins (up 8.5%).   The rally in the value of loins is particularly noteworthy as normally we do not see a significant uptick in loin values until early April.   With high prices for chicken breast and ground beef, maybe loin prices will gain more traction.   As for bellies, after a brief selloff prices have recovered.   The pace of slaughter remains key for this item as much of the supply is contracted.   Keep your eyes on belly cold storage stocks that will be reported tomorrow.

Price Charts

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.