Weather Disruptions Prop Up Prices, But Demand Concerns Persist

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Weather Disruptions Result in Sharp Decline in Slaughter, Underpin Cutout Last Week. Outlook For Early Spring Remains Muddled but More Upside Risk for Q2 on Seas

Hog Slaughter and Wholesale Demand

Total hog slaughter last week was 2.375 million head, 95k head less than expectations when the week started. Slaughter on Wednesday and Thursday was 409k and 371k head, respectively. Some of this was made up on Saturday. However, for the week slaughter was 5.2% smaller than the previous week and 4.7% smaller than a year ago. The shortfall in production supported wholesale prices last week. It is possible we will see prices remain well supported into Monday as well. The pork cutout was predictably higher on Thursday but then slipped a bit on Friday. That is somewhat of a surprise considering the extent of the drop in production. This is a reminder that pork demand is at a different level today than a year ago. One thing is worth repeating: we are talking about wholesale pork demand, i.e. demand from processors, foodservice buyers, retail buyers and export traders. Ultimately their demand will reflect the final consumer. But, in the near term, it represents their concerns about the future, pushback from downstream customers, labor issues and inventory positions.

Cold Storage Inventory

The latest USDA ‘Cold Storage’ report was a good reminder that pork supplies in cold storage have returned to a more “normal” level for this time of year. The total supply of pork at the end of January was 19% higher than a year ago. For some items, such as hams, inventories are not particularly heavy. As such, buyers are not able to stay out of the market too long. For others, such as bellies, inventory remains burdensome, up 57% from last year and 44% higher than the five-year average. Hog slaughter will be lower in the coming weeks/months. However, high cost of feed continues to incentivize producers to bring hogs to market earlier rather than later. There will come a time when we hit an inflection point. As to when that happens will be the big guessing game for April and June futures.

Fresh Pork Prices and Retail Demand

Fresh pork prices in the near term are mostly trading sideways. Retail demand has not been particularly strong, resulting in more product backing up in cold storage. The supply of pork loins in cold storage at the end of January was 43.9 million pounds. That is 16.7% higher than a year ago and 7.8% higher than the five-year average. Recently we have noticed some good demand from Japan. Sales of loins to markets outside North America are also running well ahead of last year’s levels. This is positive but it appears to us that the real action in this market will take place in Q2.

Already we are seeing the price of b/s chicken breasts trend higher. That should make pork loins more competitive in the retail case. Ground beef prices are trending up as well. Futures already are pricing a 15% premium for the loin primal value by April and a 26% premium by June. This would put the June loin primal value at par with last year’s levels. In the near term, however, loin primal value is running about 23% lower than a year ago. This presents an opportunity for domestic and export buyers alike.

Export Trend Points to Higher Shipments in March And April

Pork export business has seen a notable improvement since the start of the year. The latest data shows a continuation of that trend. While the pace of shipments is similar or slightly under last year, export buyers have put more orders on the books. That should bolster U.S. pork exports going forward. Total export sales last week were 51,916 MT, 49% higher than the average of the previous four weeks and the highest weekly sales figure since March 2021. In the last six weeks, net pork export sales have been 235k MT, which is again similar to the export sales volume we saw in early 2021.

Export sales to China continue to be inconsistent but they have been trending higher. For the second time in five weeks export sales to China surpassed 12,000 MT and outstanding net sales to China are a little over 30,000 MT, 67% higher than at this time last year.

Sales to Mexico have also surged higher and at 25,041 MT last week they were 61% higher than the four weeks average. Outstanding sales to Mexico are currently at 60,842 MT, a four-week supply and 31% higher than at this time last year.

Sales to Colombia also rebounded and we also saw strong sales to smaller markets, with the Philippines buying a little over 1,300 MT compared to just 135 MT total in the previous four weeks and sales to Australia at 1,577 MT. Sales to Japan slowed down from the big order that was reported the week before but the average of sales in the last five weeks is still above the current pace of shipments.

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