Pork Supply Continues to Outpace Estimates in the Near Term

In the last three weeks hog slaughter has been near 2.7 million head, well above expectations. We estimate that Sep-Nov slaughter was 1.7% higher than a year ago, well above the 1% increase indicated in the Mar-May pig crop.

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Slaughter Remains Above September ‘Hogs And Pigs’ Indication. Will That Continue In Q1?

In a few days (December 22), USDA will offer another update on the supply of pigs in the supply chain and the size of the breeding herd. It is a foregone conclusion that, based on the number of hogs that have come to market so far, USDA will go back and make some revisions to its estimates of the pig crop in the spring. We don’t have the official slaughter statistics for November yet but can make a close estimate based on daily/weekly slaughter reported so far. According to our estimates, hog slaughter during the Sep-Nov quarter was 32.880 million head, about 565k head (+1.7%) higher than a year ago. The September ‘Hogs and Pigs’ report pegged the pig crop for Mar-May up 1% y/y.

In the past, there has been speculation that hog slaughter may be up due to producers pulling hogs forward, that is not the case this time around. The average weight of producer owned barrows and gilts is currently running 1.3% above year ago levels. And weights have been higher than in 2022 since mid-October. There are simply more hogs on the ground than expected. To get hogs processed, producers have had to push harder to get packers to run more shifts on weekends. To make this happen, however, producers have had to compete more aggressively, resulting in sharply lower prices for hogs in the negotiated market. The price of hogs in the negotiated (cash) market has declined from around $75cwt in mid-October to $48/cwt, currently. The $27/cwt (-36%) decline in cash hog prices is far bigger than the decline in the value of wholesale pork index (cutout). During this period, the pork cutout declined from $91/cwt to $84/cwt, a $7/cwt (-7.5%) decline. The difference implies an improvement in packer margins although it is important to note that the cash price is no longer the benchmark that it used to be. More and more producers are currently pricing hogs on some combination of wholesale and negotiated hog prices. Still, the drop in cash hog values has dragged lower the price producers were paid this fall, pushing them further into the red.

What Will Winter/Spring Supplies Look Like?

The September survey pegged the pig crop for Dec-Feb up just 0.4% from the same period a year ago. Furthermore, the USDA survey indicated that producers intended to farrow 5.2% fewer pigs during Sep-Nov. Even with big increases in the number of pigs per litter, the farrowing intentions would suggest lower hog slaughter during Mar-May. It will be interesting to see what changes, if any, USDA will report in the December survey results. Already USDA has made notable revisions to their production estimates for 2024. Back in August, before the release of the September survey, USDA was estimating pork production for all of 2024 at 27.335 billion pounds (dressed wt), 339 million pounds (+1.3%) higher than the previous year. In the December update (prior to the Dec survey release), USDA had the 2024 pork production forecast at 27.730 billion pounds, 734 million pounds (+2.7%) higher than in 2023 and 1.4% higher than the forecast made just a few months ago. As the chart below illustrates, the biggest supply revisions were to Q1, Q3 and Q4 of 2024. We are somewhat more skeptical about the supply outlook for the second half of 2023 for two reasons: a) we think that ongoing losses will eventually impact the size of the breeding herd, especially in the next six months. b) we think that the number of pigs saved The September survey pegged the pig crop for Dec-Feb up just 0.4% from the same period a year ago. Furthermore, the USDA survey indicated that producers intended to farrow 5.2% fewer pigs during Sep-Nov. Even with big increases in the number of pigs per litter, the farrowing intentions would suggest lower hog slaughter during Mar-May. It will be interesting to see what changes, if any, USDA will report in the December survey results. Already USDA has made notable revisions to their production estimates for 2024. Back in August, before the release of the September survey, USDA was estimating pork production for all of 2024 at 27.335 billion pounds (dressed wt), 339 million pounds (+1.3%) higher than the previous year. In the December update (prior to the Dec survey release), USDA had the 2024 pork production forecast at 27.730 billion pounds, 734 million pounds (+2.7%) higher than in 2023 and 1.4% higher than the forecast made just a few months ago. As the chart below illustrates, the biggest supply revisions were to Q1, Q3 and Q4 of 2024. We are somewhat more skeptical about the supply outlook for the second half of 2023 for two reasons: a) we think that ongoing losses will eventually impact the size of the breeding herd, especially in the next six months. b) we think that the number of pigs saved per litter will not continue to increase at +3% and will return to its growth trend. For now it appears that the supply will be adequate through winter and early spring. But in our view market does have more upside price risk for late spring and summer, especially if end users are complacent and delay normal inventory building.

Mexico Continues to Lead Export Pack

In our last export update about a month ago, we thought October exports would be up about 2% y/y. Instead, the actual figures released yesterday put pork exports for October at 196,364 MT, 7% higher than a year ago. Continued export growth to Mexico was largely responsible for the increase. Shipments of fresh, frozen, and cooked pork to Mexico in October were 86,750 MT, 13,775 MT (+18.9%) higher than a year ago. Mexico has accounted for about 40% of total pork exports so far this year and in October the share was 44.2%. If we also add the market share of Canada, then total North America exports accounted for 52% of all US pork export shipments in October. Very strong exports to a few smaller markets also contributed to the y/y increase. Shipments to Australia were almost double last year’s levels and shipments to Colombia at 10,282 MT were 36% higher than last year. Exports to Asian markets, however, did not perform as well. Shipments to Japan were 23,740 MT, down 12.7% and shipments to China at 10,627 MT were down 45% y/y. It’s quite telling that currently Colombia is as big a market for US pork as China. In a future update we’ll focus more on increasing competition from Brazil and how that may affect US exports to markets in the Americas. Recently Mexico suspended pork imports from Brazil, which should help support US pork sales there but longer term Brazil will be a more significant competitor as its growth is export driven. Based on weekly shipments and adjusting for supply not being reported to USDA, we would expect November pork exports to be 6% higher than in 2022.

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