Inventory Survey Points to Tight Supply Near Term, Modest Increase in Summer/Fall

USDA hog inventory survey suggests that hog slaughter will be down 2% y/y through May, but then increase about 1% to 1.5% for the summer months. The increase in the breeding herd and more pigs per litter should increase supplies in the second half of 2023.

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Full Report

Pork Supply Is Expected to Be Lower in the First Half Of 2023, But Supply Is Projected to Moderately Increase in the Summer and Fall

In Brief

• Slaughter this winter and next spring expected to be down as much as 2% y/y.
• Summer could see supply increase 1.6% vs. last year.
• Fall supplies may be as much as 1% higher than a year ago
• We have raised our forecast for pork supply in the second half of 2023 but still expect total production for the year to be slightly lower than in 2022, largely due to the expected shortfall in production during the first half of next year.

Supply Implications for Winter and Spring of 2023

The number of market hogs on December 1, 2022 was estimated to be down 1.355 million head or 2% from the same period a year ago. This implies fewer hogs coming to market during Q1 and much of Q2 of 2023 than the same period in 2022. Pork buyers will find tighter supplies both because of the normal seasonal decline from fall to spring and the net decline in inventory.

During the fall non-holiday weekly slaughter was around 2.57 million head. Based on the latest survey, we would expect weekly, non-holiday slaughter during Jan-Mar to average around 2.42 million head/week, 155k head/week less than in the fall. Weekly hog slaughter in April and May last year averaged around 2.38 million head/week. The latest USDA survey tells us to expect 2% fewer hogs during this period or 47,600 fewer hogs every week.

Normally buyers look to build inventory during Q1 to offset the seasonal decline in supply during late spring and summer. US exports are also strong in Q1 as foreign buyers also recognize that US pork supplies are seasonally lower in Q2. Any delays in exports or inventory building could put more pressure on what’s expected to be a still tight pork supply next spring and summer.

Supply Implications for Summer and Fall Of 2023

Breeding herd size and expected farrowings offer some direction for supply later in 2023. The breeding herd number was a bit of a surprise as most analysts were expecting a year on year decline. The USDA survey estimated the breeding herd on December 1 at 6.154 million head, 0.5% higher than last year. The modest increase from 2021 suggests that gilt retention during the Sep-Nov quarter improved compared to the same period last year. Our take is that 2022 hog price resilience surprised producers. While the value of some pork items sold at wholesale declined and export demand to China was soft, packers paid more for hogs in 2022 than they did in 2021. Cash hog prices were $13/cwt higher (+15%) and the CME cash hog index was 6% higher.

A higher breeding herd coupled with a modest improvement in the farrowing rate had producers forecasting a 1% increase in farrowings during the Dec-Feb period. Even if we assume a 1.8% q/q decline in pigs per litter for Dec-Feb, that still implies a 0.6% y/y increase for that quarter and thus a 1.6% increase in pig supply for next summer. As for next fall, the survey points to hog slaughter that is almost 1% percent higher than what we saw in 2022, a rather modest increase.

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