Highlights
- Hog inventory report to be released 9/28 is expected to show breeding herd down 1.5% to 2% vs. year ago. The reduction may be offset by continued productivity gains but overall supply for next year is expected to be about the same as it was in 2023.
- Robust export demand continues to underpin prices in the near term. Lack of frozen inventory during the summer limited export shipments, with outstanding sales now as much as 40% higher than a year ago.
- Loin prices have been resilient so far, in part supported by higher prices for competing proteins. Futures markets remain concerned about more demand headwinds as we head into the winter, when supply seasonally moves higher.
- Ham prices are holding steady, with good demand from Mexico helping offset the seasonal increase in supply. Domestic demand is good but not to the level it was in 2022.
Full Report
Hog Inventory Survey And Supply Implications For Late 2023 And 2024
USDA will issue on September 28 the results of its quarterly survey of hog producers, offering an updated view of the inventory on the ground, the supply available for the next few months and the supply base that will determine production trends in 2024. As we wait for the upcoming survey, we will focus on a few key items:
Market hog supply
The inventory of market hogs should offer guidance as to the supply of hogs available for slaughter during the fall and winter months. Hog slaughter so far in September has been slightly above year ago levels and we expect this will be reflected in the estimates for the +180 pound inventory. In its June survey, USDA indicated that the pig crop for Mar-May was estimated about 0.8% higher than the previous year. This would imply an inventory of market hogs that’s a bit above year ago levels for Sep-Nov, and that’s been true, at least up to this point. Will USDA show a y/y increase in the inventory of 120–170 pound hogs and potentially 50-119 pounds hogs? That will be important as last year weekly slaughter between mid-September and mid-December averaged about 2.529 million head/week, with peak slaughter at near 2.6 million head occurring in mid-November. One can argue that poor margins in Q2 may have impacted production decisions but that has more to do with winter and spring 2024 supply. The pig crop that came to market in Mar-May was a result of the decisions that were made in the summer and fall of 2022, when producer margins were on very solid ground.
Breeding herd
One of the key numbers impacting future supply is the size of the breeding herd. We think poor margins last spring and domestic demand uncertainty significantly impacted producer culling and replacement decisions. Sow slaughter during Jun-Aug was 929,900 head, up 72,400 head (+8.4%) higher than a year ago. The size of the breeding herd on June 1 was estimated at 6.146 million head, 0.4% lower than last year. Sow imports, which add to the supply of sows during the quarter, were 131,880 head, only about 6k head more than a year ago, implying a limited impact on the overall increase in sow slaughter. The increase in sow slaughter would imply that producers decided to liquidate but that’s not a guarantee. Rather, the increase in sow slaughter should be viewed in tandem with gilt retention decisions. Unfortunately, USDA does not tell us anything about gilt slaughter so the only way to figure this out is to back into it. We think the ratio of gilts retained vs. sow slaughter was lower due to red ink and ongoing demand uncertainty. As a result, we think implied gilt retention during the Jun-Aug quarter was down 2.2%. Combined with the higher cull rate this implies that September 1 breeding herd could be down as much as 100k head (-1.6%) from June 1 and 1.7% lower than a year ago.
Productivity and 2024 supply
One of the biggest surprises in the USDA June survey was the 3.3% jump in pigs saved per litter. Post COVID we repeatedly noted that productivity had taken a step back, with the number of pigs saved per litter barely moving during 2021 and 2022. Several factors seemed to contribute to this, with disease pressures and lack of labor at the top of the list. We continue to hear that PRRS disease pressure has subsided and that farms have been able to get some of the more experienced farm hands back. The chart above shows the trend in pigs per litter pre-COVID and the fact that in the latest survey the gains in productivity brought the industry closer to that trend. If that continued during Jun-Aug and remains in place for Sep-Nov and Dec-Feb, then it could serve to offset much of the impact from fewer breeding hogs and lower farrowings.
Bottom line
USDA is currently forecasting pork production in 2024 to expand modestly vs. 2023. Our baseline forecast is for a modest decline due to a smaller breeding herd and moderate productivity gains. This last point will be an important factor to watch and key in determining 2024 supply.
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.
