In the last four weeks hog slaughter is down 2.3% lower than a year ago, and that’s after a 2.7M week last week. Spot supply has been tight following holiday and winter weather disruptions and it will take some time for it to recover.
Highlights
- In the last four weeks hog slaughter is down 2.3% lower than a year ago, and that’s after a 2.7M week last week. Spot supply has been tight following holiday and winter weather disruptions and it will take some time for it to recover.
- Price performance varies greatly by product. However, the main reason for the jump in the cutout is the higher price paid for bellies as processing plants find very limited availability.
- Cold storage inventory of pork at the end of December was 6.4% lower than a year ago and 9.3% lower than the five year average.
- Prop 12 speculation persists. The short slaughter weeks may have helped keep fresh pork supply in check but market will be tested in Feb/Mar as supply normalizes and demand traditionally is soft.
Full Report
There has been a notable shift in pork supply coming to market in recent weeks and that’s being felt across the wholesale market. Some perspective is necessary. Hog slaughter for the week ending Nov 30, Dec 7 and Dec 14 averaged 2.683 million head/week, the highest weekly slaughter for the year. On top of that, hog carcass weights during those three weeks were around 217 pounds/carcass, near the top of the annual range. The combination of high slaughter and heavy weight hogs resulted in ample pork supplies and lower prices in December (see chart).
Then it all changed. Hog slaughter in the three weeks ending Dec 23, Dec 30, and Jan 6 averaged 2.340 million head/week, 343k head/week less than in late November and the first two weeks of December. Slaughter usually declines into the holidays and generally that is balanced out by the fact that processing plants are also managing their production during the holidays. But what normally happens is that following the holiday shortened weeks plants are scheduled to run full production and look to refill their pipeline. Hog slaughter picks up as producers look to market some of the hogs backed up during those holiday weeks. Instead, winter weather forced processing plants to shut down because workers could not drive to the plants and trucks could not deliver.
For the week ending January 13, USDA pegged hog slaughter at just 2.174 million head, half a million head less (-19%) compared to the same week a year ago. The shortfall forced processing plants to raise bids to find replacement loads. Now industry is in the process of replenishing a very tight spot market. Last week slaughter was 2.719 million head, up 7% y/y. But even with this increase, slaughter in the last four weeks is still lower than what it was a year ago (see table).
The Effect of the Supply Roller Coaster on Pork Prices Varies, Depending on Where Product is Going.
By far the biggest impact has been in the belly market. Bacon processing plants likely sold product for retail business given the very low prices in December and now they need to find the product to run production and cover orders. Since January 3, the pork belly primal has increased by $48/cwt (+49%). The increase in the belly primal has been the main reason for the 8% increase in the value of the pork cutout during this period. The value of the ham primal, however, has declined about 11% during this period. Some of this may be due to transportation issues for loads going to exports. Sales to Mexico have been robust but if delivery is delayed due to lack of transport, the packer needs to move current production elsewhere. The value of the picnic primal also declined by 10% during this period. After bellies, pork trim has seen the biggest jump, with the price of 72CL pork up 11% since January 3. As with bellies, the shortfall in supply and the need to run production forced processors to pay up. Pork supply should slowly recover and some of the product issues will be resolved but this was a wakeup call for end users that likely grew complacent with the ample supply of pork in Q4. Spring and summer are coming and slaughter will not stay at +2.6M/week.
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.
