Weather disruptions resulted in lower slaughter early last week. However, with supply expected to recover this coming week, prices came under significant pressure last Thursday and Friday.
Highlights
- Weather disruptions resulted in lower slaughter early last week. However, with supply expected to recover this coming week, prices came under significant pressure last Thursday and Friday.
- Hog futures have been trending lower, pricing ample supply and more export downside risk.
- Higher prices for hams and bellies at the end of July and early August helped bolster the overall wholesale index. The rally proved to be short lived. Belly prices at the end of the week were 16% lower than the week before and ham primal value was down 9%.
- Pork processors recognize that there will be more supply coming in the next two weeks and seem more willing to negotiate. Pork supply will only continue to increase going forward.
- Loin prices have traded sideways for the last 45 days and continue to provide retailers with attractive value for post Labor Day features. Higher prices expected in September.
Full Report
Hog slaughter last week dropped under 2.4 million head, largely due to weather disruptions in the East Coast. And yet in the last four weeks weekly slaughter has averaged 2.1% higher than the year before. The shortfall in slaughter helped support trim values and a few retail items with Labor Day around the corner. However, since June slaughter has been consistently above year ago levels and that’s expected to continue in the fall. The lower slaughter numbers last week also imply more supply pressure in the last two weeks of August.
Last year hog slaughter for the week leading into Labor Day was near 2.5 million head and this year it could be as high as 2.55 million. Add to this the heavier weights and packers will have more pork to move in late August at a time when processors, like they did for the 4th of July, will look to manage schedules for a short production week. Point of all this is that there is a fair amount of product price volatility going into and coming out of the holiday weekend – a reason not to over react.
Carcass weights are currently running 1.5% higher than a year ago – this is for all barrows and gilts sold. The average weight of producer owned barrows and gilts, however, has been notably higher than both last year but also 2021 and 2022 (see chart). Weather and lower feed costs have been a factor, adding to the supply of pork coming to market. Last year cash hog values rallied a bit in July and August. That has not been the case this year. Yesterday cash hog prices were under $84/cwt (dressed), the lowest in more than two weeks and below spring levels (see chart). Producers have a six-week window to try and get more current in their marketings. This is difficult when you have a short week coming up. Years 2021 and 2022 offer two contrasting trajectories for weights and hog prices. In 2021, hog weights started to climb in early September and producers never managed to get caught up. The result was a cash hog market that by the end of November traded at $55/cwt (see chart). More producers are pricing hogs using the cutout but that does not mean that cash hog values are meaningless. They still determine the price for millions of hogs traded on a formula basis of the cash price. The cash price is also an important input for the calculated value of the CME hog index. In 2022, producers did a much better job staying on top of their marketings and weights were notably lower in Q4. Hog values performed much better. So what will be the trend this year? At the current pace the market looks more likely to repeat 2021 and 2022 but much will depend on the next six weeks. The reduction in hog processing capacity only adds to the downside price risk for Q4.
Pork Exports were Lower in June on Weaker Asian Demand, More Competition from Brazil
Exports of fresh, frozen and cooked pork in June were 179,556 MT, 8.3% lower than a year ago. Exports of variety meats were 40,413 MT, 11% lower than a year ago. The chart to the right shows the main contributors to the decline in pork exports and what stands out is that the bulk of the decline is due to lower exports to three markets, China, Japan and the Philippines. The slowdown in exports to China is not news. The increase in domestic production and Chinese consumers pulling back on spending has resulted in a notable slowdown in demand from that market. Exports to China in June were 10,071 MT, 40% lower than a year ago. Exports to another key market, Japan, were 28,056 MT, 13% lower than last year. The strong US dollar has impacted sales to this market and created an opening for Brazil to make inroads in this market. Brazilian pork export shipments to Japan so far this year are up almost 27k MT (+123%). The same can be said about the Philippines. US exports to this market in June were just 3,222 MT, 40% lower than a year ago. Brazilian pork export shipments to this market so far this year are up by more than 38k MT (+71%). Mexico remains the top market for US pork and it is critical for pork demand in the second half of the year. Export shipments to Mexico in June were 71,145 MT, down 1.5% from a year ago but still up 6.2% for the year. The weak Mexican Peso presents more headwinds for exports to this market. While Mexico will remain the top market, lower prices may be needed to maintain the flow of product to this market. Mexico has once again also opened the door to Brazilian beef following a temporary suspension late last year and earlier this year. Brazilian pork export shipments to Mexico in July were 5,663 MT, a four-fold increase from last year and up 144% for the year. Most of the shipments this year have come during May-Jul.
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.
Content reshared courtesy of the Pork Checkoff, Des Moines, Iowa
