More Hogs Helping Shore up Prices For Now But It’s Not Too Early to Think About Spring

More Hogs Helping Shore up Prices For Now But It's Not Too Early to Think About Spring

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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.

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In its December survey, USDA updated some of its expectations for hog supplies this winter. The report suggested that hog supply was going to be front loaded. The supply of hogs over 180 pounds, at 13.852 million head, was about 375,000 head, or 2.8%, higher than the year before. How does that compare with reality? The numbers are not going to be exact, but slaughter for the period Dec 1 through Jan 10 was estimated at 15.033 million head, 2.8% higher than a year ago. So far, so good. USDA then pegged the inventory of hogs between 120 and 179 pounds at 14.872 million head, 0.6% above a year ago. That implies weekly slaughter in the second half of January and through mid February at around 2.55 million head. Last week, hog slaughter was 2.68 million head, so the expectation is that slaughter will decline by around 100,000 head by mid February.

None of this should be a surprise. Seasonally, hog slaughter tends to decline once some of the hogs backed up during the short holiday weeks come to market. Still, it is a reminder that while product prices in the very near term are relatively stable, the situation is likely to change as supply starts to shift.

The pork cutout on Friday was around $92/cwt, only $1 higher than a year ago despite higher slaughter. This is not an aberration. Since Dec 1, hog slaughter has been around 2.8% higher, while weights have gained around 1.2%. Yet despite the roughly 4% increase in production, the pork cutout since early December has averaged $12/cwt, or 14%, above the previous year.

The gains have been broad based. The only part of the cutout losing ground has been items such as front and hind feet, which depend heavily on exports to China. The rib primal has seen the biggest year over year increase, up almost 40% for the six week period from Dec 1 to Jan 10. Why the big gains? We suspect sharply higher beef prices have resulted in robust demand from both foodservice and retail customers.

Seasonally, there is strong inventory building activity during the fall. In November, rib inventory increased 12% from the previous month. While better than the previous three years, this remains well below the level of inventory building seen in the past. Seasonally, rib prices move higher into spring and summer. Escalating beef prices, in our view, present additional upside price risk for ribs despite current elevated levels.

Ham prices during December and early January were 16% higher than the year before. Ham prices in the last few days have taken a step back, which is not unusual for this time of year. However, pay attention to the volume of sales to Mexico in late December. Exporters have started to load up on product and will likely continue to do so in January given attractive price levels. What happens with ham prices in February and March, when slaughter is 100,000 head lower than today and processors are running full production preparing for Easter? Getting ham needs covered sooner rather than later is imperative.

Other pork items, especially trim, also continue to outperform year ago levels, and modest supply gains have not been enough to match current demand strength. Mexico presents one key downside price risk for the market as USMCA negotiations and brinkmanship come into focus.

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