Hog supplies expected to be higher y/y through spring and early summer, but supply risk is skewed to the downside considering cuts to the breeding herd and uncertainty about productivity growth going forward.
Highlights
- Hog supplies expected to be higher y/y through spring and early summer, but supply risk is skewed to the downside considering cuts to the breeding herd and uncertainty about productivity growth going forward.
- While hog futures and cutout has been trending higher, market demand assumptions are still relatively modest, implying potentially more upside for summer and fall.
- Slaughter was lower than expected last week and that will limit fresh availability in the near term. Loins, butts and trim likely to see the most support.
- Ham market has taken a step back, even with the pullback in slaughter. This is in line with seasonal trends as much of the Easter demand is covered by now and processor orders are expected to slow down. Exports will be key in helping clean up spot supply.
- The decline in slaughter and down trend in hog weights has firmed up prices for fat trim. Still, values remain under last year, in part due to the lower value of lard and fats in general.
- Brisket bones continue to trade very firm. Sparerib prices are flying high and packers are opting to sell them whole, limiting the supply of brisket bones.
- Picnic prices to trend higher as slaughter declines in Q2.
Full Report
Lean hog futures have rallied in the last two months as product prices have performed better than most expected. But does that mean that pork demand is strong? Or could it be that some of the demand assumptions baked into futures in late December were overly pessimistic? We tend to favor this second explanation. Also, we do not see pork supply as particularly burdensome and expect supply to become more of an issue in the second half of the year.
Near Term Supply to Decline
January hog slaughter was estimated at 11.317 million head, about 237k head (+2.1%) higher than the previous year. January had one extra marketing day, which helped offset the shortfall created by winter weather storms. February hog slaughter numbers are not out yet but, based on the daily/weekly slaughter numbers reported, we expect slaughter to be up as much as 10% y/y. That’s because of robust slaughter during the month and one extra day (leap year). However, March will be lower. March has two fewer marketing days that in 2023. Additionally, the early Easter (March 31) means a lower slaughter for Good Friday and then minimal slaughter in the following Saturday. Consequently, March slaughter could be down as much as 8% y/y. These are monthly comparisons but it’s important to consider the swing in hog/pork supplies from winter to early spring.
Spring Supply Should Possibly be Higher than in 2023
In the December survey USDA put the farrowings figure for Dec-Feb down 1.8% from a year ago. However, the number of pigs saved per litter is expected to be up about 4% y/y, which should more than offset the expected reduction in farrowings. However, there are two key unknowns about this. First, the farrowing number for Dec-Feb appears a bit high relative to the breeding herd. If the ratio of farrowings to the breeding herd is similar to the year before, then farrowings would be down around 3% y/y. Second, the pigs per litter number is highly uncertain, especially during the winter months. So even as the expectation is for supply to be higher y/y during Jun-Aug (Dec-Feb pig crop), there is room there for a surprise to the downside.
Fewer Hops Expected in the Fall
Our current expectation is for the breeding herd as of March 1 to be around 5.950 million head, down about 50k head from December 1. This is due to the high rate of sow slaughter in the last three months and relatively low gilt replacement rate. If we are right, then the breeding herd decline could result in farrowings during Mar-May that are down about 3% from a year ago. Even if pigs per litter numbers are close to the trend line in the chart above, it would not be sufficient to offset the reduction in farrowings, implying a pig crop for Mar-May down 1-1.5% y/y.
Putting it All Together
Our current forecast is for hog slaughter in 2024 to be 0.8% higher than a year ago. But, that number is skewed a bit due to two extra slaughter days that the year before. If you adjust for that, then slaughter is slightly lower than a year ago. We also have not fully accounted for the possibility of a 1% decline in the pig crop during Mar-May. So there is more downside risk to our supply projections for 2024. On the other hand, we expect pork exports for 2024 to be up 4.7% from a year ago. This is in part due to the pace of exports/sales to this point as well as the decline in export product availability and higher prices for European pork. Given a modest increase in pork supply and higher exports, per capita availability in 2024 is currently expected to be down 0.5% y/y.
The chart on page 1 shows the wholesale demand curve for pork. Our current forecast is for the pork cutout in 2024 to be around $97/cwt. While that is 7% higher than a year ago, that is far from suggesting a robust pork demand. If anything pork demand in 2024 remains soft from a historical perspective. It is also far weaker than it was in 2021 and 2022, when it benefited from the reopening of the economy after COVID. This all goes to show that, even as pork/hog futures have rallied since December, we are far from a bubble. Higher prices for beef and chicken will only support pork demand this spring and summer while the supply picture will start to reflect some of the production decisions (cuts) made 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.
