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
- Hogs and Pigs inventory implies higher slaughter starting in the spring and through the end of 2025. Report accuracy has come into question, however, and injected more uncertainty going forward.
- Demand will be critical in the spring and summer as producers are expected to bring more hogs/more pork supply to market.
- Spot supply remains limited. Some of it is to be expected as packers have managed to keep production in check. Timing of the holidays also may be affecting the flow of product.
- Ham market has been the biggest surprise, with prices holding up even as holiday demand is now behind is. The short production weeks may have something to do with this but Mexican buyers have also been very active, putting more orders on the books. Despite recent orders, outstanding sales to Mexico are 17% lower than a year ago.
- Belly prices have also outperformed expectations are futures currently imply higher belly prices into Q1. The real test for the market, however, will come once slaughter normalizes. Hogs and Pigs inventory data suggested limited supply growth in the next two months but higher production potential for the spring and summer.
Full Report
At face value the report was bearish, with pork supply in the spring potentially +2.5% higher than a year ago and then the possibility of +1% or more increase in the summer and anywhere between 2 and 3% increase next fall. Despite this, hog futures have rallied as spot supply is tighter than anticipated. Prices for hams and bellies have gained thanks to the tighter supply, with processors forced to pay up to maintain production schedules. In the short term, we think prices are supply driven. If the report is right about spring, summer and fall supply, however, then demand needs to continue to improve to justify the current price structure.
Supply implications for next six months
The four groups of market hogs offer a supply indication for Dec – May, roughly as follows:
+180 lb. hogs: -0.5%. These are hogs that have come to market so far in December and they will continue to flow into processing plants into the first half of January. Because of holiday and weather disruptions, the weekly y/y comparisons will be skewed but the USDA report suggests that in aggregate slaughter will be only slightly lower. Slaughter in the first two weeks of December, however, was 3.7% lower y/y.
120-179 lb.: -0.6%. These are hogs that should come to market mid to late January through February. The weather disruptions earlier this year will skew the y/y comparisons in the second half of January. Overall, however, the USDA survey suggest February supply only slightly lower.
50-119 lb.: +1.4%. At face value, USDA report suggests that hog slaughter between late February and mid-April should be up about 1.5% y/y. Add to this a possible trend increase of 0.5% in weights and early spring supply could be up as much as 2% y/y. April hog futures are currently near $90/cwt, implying a cutout value of somewhere around $95-98/cwt. This would be a bit lower than the cutout that traded in April of this year.
Under 50lb.: +1.2%. These are hogs that should come to market mid-April through the end of May. Again, the USDA survey suggests weekly slaughter during that time above year ago levels and then even more production considering the normal increase in hog weights.
Implications for the second half of the year
USDA does not provide a pig crop estimate for Dec-Feb, only a farrowing intention. Farrowings for the quarter were pegged at 2.930 million head, about the same as a year ago. If pigs per litter continue to increase by around 1.5% y/y, it implies hog supply next summer will surpass the levels that were available this year. Additionally, the survey also suggests that producers expect farrowings for Mar-May to be up 1.4%. With pigs per litter potentially increasing by 1% or more y/y and heavier weights, the survey would suggest pork supply next fall up as much as 2.5% to 3% higher than in 2024. Again, all this hinges on report accuracy, which has left much to be desired recently.
If survey is right, better demand needed to justify current futures
We think that the key driver for price performance in Q4 of 2024 was supply, not demand. Currently futures are pricing some lofty expectations for prices next summer even though the USDA survey suggests pork supply will continue to expand. At this point we have opted not to change our supply projections despite the latest report, hence our price forecast of the pork cutout for next year only requires a rather “normal” demand. But if we were to take the survey at face value, then further demand improvement is needed to reach current futures levels, let alone exceed them.
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.
