Cold storage report bullish, with pork inventories down in February vs. previous month despite increase in production. Total inventory at the end of February was down 12% from a year ago.
Highlights
- Cold storage report bullish, with pork inventories down in February vs. previous month despite increase in production. Total inventory at the end of February was down 12% from a year ago.
- Hog slaughter last week climbed over 2.5 million head, but the increase is likely to be short lived. Slaughter will be closer to 2.4 million this week as some plants run reduced schedules (Good Friday). Seasonally slaughter is expected to be under 2.5 million heading into May and then under 2.4 million in June and early July.
- Market participants will be paying close attention to the results of the USDA quarterly hog inventory survey. The survey will provide an update on the expected supply of hogs this summer as well as the size of the breeding herd this spring and potential production for next fall and winter.
- The increase in slaughter resulted in modest downward pressure on fresh pork items but expectations are for loins, ribs, butts, and trim to move higher in Q2.
- Belly prices have been trading sideways in the near term. More upside price risk seen for May/Jun. Ham prices trending lower now that Easter demand is behind us.
Full Report
The pork cutout has managed to stay in the low 90s for much of Q1, defying some of the more bearish ideas that percolated last year. As we have noted previously, the higher prices paid for bellies have been a key factor, accounting for about 2/3 of the y/y increase in the value of the cutout. But, we would argue that it is fresh pork, rather than bellies, that have been the biggest surprise so far this year. At the end of the week (3/22), the value of the loin primal was estimated at $92/cwt, 9% higher than a year ago. Pork butt primal value was also up 8% while spareribs were up 52%.
The reason for this being a surprise are twofold. First, pork production in January and February was 262 million pounds (+6%) higher than a year ago. Second, there was a lot of speculation in the second half of 2023, especially towards the end of the year, about the impact that Prop 12 in CA and Question 3 in MA would have on sales to 15% of the US population. Higher prices and lack of Prop 12 compliant supply was expected to result in more fresh pork available in other parts of the country, depressing prices. That has not happened. Instead, fresh pork prices have been trending higher and are now expected to be higher still in April and May as seasonal demand picks up while hog supply slowly moves lower.
In a couple of weeks USDA will provide the results of its quarterly survey of hog producers and the focus will be both on productivity during Dec-Feb and the size of the breeding herd on March 1. Three months ago, the survey suggested modest supply growth for the summer. Since then, however, producers have continued to send more sows to market, with sow slaughter projected up about 6% during Dec-Feb. Talk of a supply glut may have also affected gilt retention, a number that we do not have a way to measure until the quarterly survey results come out. For now the expectation among market participants is that summer supply will be near year ago levels but a more stable retail and foodservice demand will help prices in the spring and summer. For all the talk of supply, we still think demand remains the critical driver. By our estimates, even with the recent improvement in hog/cutout values for late spring and summer, full 2024 demand is still projected to be below the long run demand curve.
The warm winter has likely had a positive impact on fresh meat sales, including pork. The price ratio of pork chops to ground beef and chicken breasts is on the low end of the five year range, implying a more competitive position for pork as retailers adjust their merchandising for the spring. The price of boneless pork chops is currently about 6% higher than last year. However, the price of b/s chicken breasts is now 23% above last year and the price of 81CL coarse ground beef is 31% higher than a year ago. Lean beef prices are expected to push even higher in Apr/May due to fewer cows coming to market while chicken production has faced productivity issues. Pork prices may be up y/y, but still a value relative to competition.
Pork in Cold Storage
The supply of pork in cold storage remains well below year ago levels, which may impact price action in Q2. Inventory was down by double digits across most categories. Pork supply was higher in February, in part due to one extra slaughter day but also because packers sought to make up for the weather impact on production in January. Still, the inventory of all pork in cold storage was 1% lower than in January, pointing to good domestic and export clearance. The total supply at 456.5 million pounds was 65 million pounds or 12% lower than a year ago. Belly inventory was slightly higher than the previous month at 63.8 million pounds but 10% lower than last year. Belly inventory is still large, from a historical perspective, however. The inventory of boneless loins increased 5% from the previous month and it is now 8% higher than last year.
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.
