Pork Market Situation and Outlook

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Full Report

December lean hog futures on Friday closed 4% lower than the previous week, while the February contract was down 3%. Futures traded lower even as the latest Hogs and Pigs report suggested that supply on the ground will be well below expectations. It may be a case of buying the rumor and selling the fact, or simply that with spot prices coming under pressure, market participants are recognizing that seasonality remains a key factor for hog and pork prices in the fall. Hog slaughter last week was estimated at 2.6 million head, about 70,000 head more than the previous week. Slaughter is expected to hover near 2.6 million head over the next six weeks, consistent with the latest Hogs and Pigs report and normal seasonal trends. Pork production, however, is running above last year as hog carcass weights are about 1% higher than year-ago levels. As with cattle and beef, USDA is not publishing official figures for slaughter, weights, and production. The numbers in the two attached charts reflect AMS estimates of slaughter, based on plants operating, and weights reported in the Mandatory Price Reporting system. While not official statistics, these at least provide a way to track supply until USDA funding is restored.

The increase in supply has started to pressure most items, especially processing cuts that were tight during the spring and summer. On Friday, 72CL pork was quoted at $115/cwt, down $10 from the previous day and $15 lower on the week. The price of 42CL pork fell below $100/cwt on Friday for the first time in three months. More important for the cutout, however, is the sharp decline in belly prices. Belly gains had accounted for more than half of the year-over-year increase in cutout value during the summer. On Friday, the pork belly primal was pegged at $153/cwt, down $30/cwt, or 16%, since early September. The decline in bellies alone has removed about $5 from the cutout.

Belly prices normally trend lower in the fall, although both in 2022 and 2024 there was a brief uptick in late October tied to retail features. QSR sales will be an important factor this year, especially since high summer prices pushed finished goods higher, costs that are now flowing through restaurants.

Retail sales are also likely to be impacted, as elevated July and August prices could result in fewer promotions. In each of the last three years, the belly primal value in early December was 15% to 40% lower than in late September. Based on that history, belly prices in early December could at best hold in the mid-$130s (current forecast), but if demand falters, they could dip as low as $110.

Pork in Cold Storage

There are doubts whether USDA will publish a cold storage report in October.  Much will depend on when funding will be restored.  In October 2013, USDA delayed the release of the report until the end of the month.

The report issued in September showed that pork supply remains limited, and in the near term this continues to underpin overall pork prices, especially for processing items. Total pork in cold storage at the end of August was 393.9 million pounds, down 13.5% from a year ago and 20.1% below the five-year average. This was the lowest end-of-August inventory since 2010, reflecting both reduced production and strong product movement into commerce.

Inventories in August declined 2.7% from the previous month. Normally, stocks tend to build modestly during this time of year, with the long-run average increase at about 0.6%. Instead, high prices for key items such as hams and trim have limited the usual buildup and contributed to the overall drawdown.

Belly stocks at the end of August were reported at 23.6 million pounds, 8.5% lower than last year and 19% below the five-year average. Inventories declined 25% from July, a smaller drawdown than the long-term average of 36%, but that’s understandable given that belly stocks were already starting from a low base.

Ham inventories totaled 130.1 million pounds, 14% below year-ago levels and nearly 20% below the five-year average. Reduced slaughter and elevated prices have both played a role in limiting ham storage this summer. Does the lower inventory of hams in cold storage set the stage for higher sales in Sep/Oct?  While possible, it is more likely that the lower inventory building during the summer will result in lower sales for the holidays.

Trim inventories were also notably lower, down 15.5% from the previous month compared to a normal drawdown of about 4%. Tight supplies and strong pricing have accelerated product movement, leaving far less trim in storage than typical for late summer.

Price Chart

Forecasts