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’ report noted that supplies later in the summer and into the fall may start to trend above year ago levels. If true, this should help temper prices as supply seasonally start to improve.
  • In the very near term, however, pork supply remains limited and it is likely to decline further into July as hog carcass weights seasonally decline.
  • Higher prices for pork bellies (+50% y/y) have contributed the bulk of the overall increase in wholesale pork prices. At the end of May, the supply of bellies in cold storage was 26% lower than a year ago. Limited cold storage stocks and seasonal decline in slaughter is expected to keep belly prices elevated through early August but then trend lower in September and October.
  • Ham prices were well supported in June, partly due to the seasonal supply decline but also big export orders to Mexico.

Full Report

Key Takeaways

  • Moderate supply growth this fall and winter, driven by productivity gains.
  • Late summer supply could be higher than expected, pressuring prices post Labor Day.
  • Fall futures have rallied on tight spot supply and PRRS fears, but this was not reflected in the report estimates; price risk for the fall is now skewed to the downside; nearby strength will continue to impact deferred contracts for now.
  • Pigs per litter beat expectations but followed recent trends, reinforcing that productivity is sustaining modest growth despite a stable breeding herd.

Summer Supply Outlook

The pig crop for Dec-Feb (Jun-Aug slaughter) was pegged down 0.2% in the March survey and this number remained unchanged in the latest report. USDA will eventually revise this number when actual slaughter has been recorded. For now, however, it appears that the supply will be lower y/y in late spring and early summer (+180 lb. inventory down 0.6%) then increase y/y in the second half of July and August.

The inventory of hogs between 120-179 pounds was pegged at 15.260 million head, 0.5% higher than a year ago. This was well outside the range of expectations, which even on the high end pegged supply to be down y/y. August hog futures were lower when market opened on Friday but then eventually recovered. There is still a lot of uncertainty about hog supply on the ground, despite this latest report. Given that hog slaughter in the four June weeks has been notably lower (-1.4%) than what was projected in the March, market participants will need to see more evidence before trading this supply outlook.

Full Supply Outlook

We have been more bullish than USDA in terms of the supply outlook for the first half of the year, in part because we thought the decline in profitability during 2023-24 would impact the outlook for 2025. That has certainly been the case. It appears that producers have now settled situation where they are keeping the production base in check (sow herd stable for now 7 consecutive quarters) while relying on productivity improvements to increase supply. The pig crop for Mar-May is currently estimated at 34.171 million head, 1.3% higher than a year ago. USDA also noted that the supply of pigs under 50 pounds was 1.2% higher than a year ago. Last year weekly slaughter (non-holiday weeks) during Oct/Nov was around 2.61 million head/week. The June survey would suggest a weekly slaughter of a little over 2.64 million head. The CME October lean hog futures are currently trading around $10/cwt (+12%) higher than a year ago, suggesting market expects robust demand will continue to underpin the pork market, as it has this summer. July futures are currently up 28.5% y/y. The initial read of the USDA report was that it was bearish but market participants are a) not convinced about survey accuracy and b) continuing to price a far more robust demand than a year ago, at least until they see evidence to the contrary.

Supply in the Winter and Next Spring

Producers think that farrowings for the Jun-Aug quarter will be 0.4% lower than a year ago. This is consistent with the breeding herd on June 1. But what will the pig crop be during the quarter, thus expectations for slaughter during Dec-Feb? So far the pigs per litter growth has been fairly consistent with the pre-COVID trend line. If that continues to be the case this summer, then Jun-Aug pigs per litter would be around 1.3% higher than a year ago, implying a 0.9% y/y increase in the pig crop. Last year the number of pigs saved per litter during the Sep-Nov quarter jumped 2.2% from the previous year and was well above trend. If productivity is closer to trend this time around, then we could see the number of pigs saved per litter increase 0.3% q/q and be 0.2% lower on a y/y basis. Producers, however, think that farrowings for the Sep-Nov quarter will be up 1.1%, in part because we are comparing to a relatively low number last year. If true, and combined with the potential decline in pigs per litter, it implies a sub 1% growth in hog numbers next spring.

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.