Lower Pork Supply, Better Demand Sets the Stage for Summer Rally

Lower Pork Supply, Better Demand Sets the Stage for Summer Rally

On this page:

• Full Report
• Price Chart
• Forecasts
• Downloads

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.

Full Report

Hog slaughter last week was estimated at 2.396 million head, 4.5% lower than a year ago. Processors typically run reduced schedules going into Easter Sunday, so the shortfall was not a surprise. Last year, slaughter during Easter week was 2.367 million head. More important for market participants, however, is the outlook for hog slaughter in the next eight weeks heading into Memorial Day. We expect slaughter next week to increase but remain under 2.5 million head. The expectation is then for slaughter to drop to around 2.45 million head by the end of April and average around 2.4 million head in the three weeks leading into Memorial Day. This would mark a notable shift from the 2.5+ million head per week observed in March.

Supply availability during June-August is expected to be only marginally higher than a year ago (see highlights in the chart above). This would imply further declines in weekly slaughter during this period, with non-holiday slaughter expected to average around 2.36 million head per week. This will be further compounded by the seasonal decline in hog weights as temperatures climb above 90 degrees.

Price Expectations: In Q1, the pork cutout averaged $96/cwt, 1% higher than a year ago. The forecast is for the cutout to average $105/cwt in Q2, about $2 higher (+2%) than a year ago. The average cutout value for Q3 is expected to be $111/cwt, 3% lower than a year ago. Why expect prices to be lower year over year in Q3? We think end users were anticipating more ample supplies than ultimately materialized. As a result, they were caught short, and prices last year climbed well above what fundamentals would suggest, likely aided by the sharp increase in beef prices.

With end users now expecting tighter supplies and higher prices, we think there will be better forward coverage this year. In our view price risk remains skewed to the upside, particularly given that pork inventories at the end of February were 5% lower than a year ago and the lowest in more than 20 years. Some of this reflects structural changes, with Mexico accounting for a larger share of exports, reducing the need to hold product in cold storage. However, belly inventories, which are largely consumed domestically, were 8% lower than last year and 18% below the five-year average. Last year, belly primal values averaged around $183/cwt during June-August. We expect belly prices to average above $180/cwt again. Could belly prices climb to $200? It is possible but not probable in our view. The reason we still think is possible has to do with all the talk of disease losses as recently as March, which could significantly limit availability in late July and early August.

Our forecasts also call for pork trim prices to move higher in Q2 and Q3, driven in part by seasonal declines in production and the impact of higher competing beef prices. Elevated prices for US lean and fat beef trim should incentivize processors to maximize pork usage in blended formulations. Ham prices are also expected to rebound, although we still anticipate they will remain below year-ago levels through June. Last year, concerns about tariffs kept exporters active and forward-booked. Those concerns have since subsided.

Still, as recent export sales suggest, the cure for low prices is often low prices. Exporters to Mexico booked the largest volume of pork in recent history, possibly ever, last week. As packers work through those orders while slaughter declines, we expect bone-in ham prices to rebound from the low $70s to around $105-106/cwt by June, still about 5% below year-ago levels. As for fresh pork, prices are expected to trend higher into July. Loin primal values were around $91/cwt last week and are projected to reach $100/cwt in June. The picnic primal is expected to gain about $11/cwt, from $77/cwt currently to $88/cwt in June, while the butt primal is expected to increase by about $30/cwt over the same period.

Price Chart

Forecasts