Short holiday weeks and winter storms across the Midwest have impacted processing and resulted in tight spot supplies. Slaughter in the last three weeks has been under 2.3M head/week, about 300k head less per week than in early December.
Highlights
- Short holiday weeks and winter storms across the Midwest have impacted processing and resulted in tight spot supplies. Slaughter in the last three weeks has been under 2.3M head/week, about 300k head less per week than in early December.
- The shortfall in supply has impacted prices but processing items have seen the most upside as buyers struggled to find replacement product and maintain production. Bellies were up 15% vs. the week before and pork trim also saw a notable uptick.
- Hog prices in the cash market remain steady as shortfall in production risks backing up hogs in the farm. Not all pork items have benefited from the decline in production. Picnics tend to decline after the holidays, and this year is no different. Ham prices were also lower, in part because of export transport disruptions.
- USDA revised up its estimates for corn production, now pegging it at 12.4% above year ago levels. Ending stocks for the 2023-24 marketing year are now projected at the highest point in five years, pressuring corn prices lower.
Full Report
Hog slaughter last week was estimated at 2.279 million head, lower than the week before and near the levels we saw during Christmas week. In the last three weeks, hog slaughter has averaged near 2.3 million head/week, about 300k head/week less than before the holidays. The shortfall in supply has resulted in tighter spot supplies and underpinned wholesale prices. The pork cutout on Friday was quoted at $86.1/cwt, $2 (+2.2%) higher than the previous week, but well above where futures thought the cutout would be trading in mid-January. Following the release of the quarterly ‘Hogs and Pigs’ report there was a sense that supplies on the ground were big and lower prices were needed to clean up the market. Prop 12 uncertainty further weighted on the market in December. Some of these concerns have receded in the short term given the sharp decline in supply, but it is important to remember that they have not gone away. Slaughter will return to +2.55 million head/week, at which time we will be able to better assess the market.
Probably the most significant increase in pork has been for bellies and trim. On Friday afternoon the value of the belly primal was 15% higher than the previous week while gains for other primals were somewhat more muted. Despite the shortfall in supply, the value of the picnic primal was down 9% as seasonal factors more than offset the supply impact. As with beef, we made only modest short-term adjustments to our forecasts, seeing the supply disruption as a temporary event. We continue to see more upside price risk for pork prices in the second half of the year and early 2025.
Lower Grain Prices Should Help Ease the Expected Contraction in Pork Supplies
The most recent USDA supply/demand estimates surprised most market participants by revising up the supply of corn harvested last fall. The final estimate pegged the average corn yields at 177.3 bu./acre, almost 3 bu. higher than earlier projections and a new record. USDA has steadily revised up its estimates for US corn production. USDA also waits until January to issue the final crop estimate to assess on and off farm corn inventories. The grain stocks survey for December showed that supply was about 100 million bushels higher than expected. This would imply a larger harvest, a lower demand during the fall months, or a bit of both. It should be noted that feed demand this may have been impacted by some 21 million head of poultry destroyed in commercial operations. Indeed, with the supply side now largely completed, market focus will shift to demand. And the risks there remain plentiful.
The hog breeding herd as of December 1 was estimated 3.3% lower than the previous years. Pigs per litter growth may help in the near term but prospects for significant demand growth from the hog industry are limited. As for cattle, we think the supply of feeders outside feedlots is currently 6.5% lower than a year ago. Yes, there are more cattle on feed today, but forward demand will go down, not up. As for poultry demand, expectations are for only modest growth, and the risk of HPAI is ever-present.
Current forecasted prices remain above the 2015-19 average of $3.50 a bushel. However, the price difference is not as significant when adjusting for inflation.
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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.
