Highlights
- For those who had forgotten about seasonality in pork prices, the last few weeks have been a good reminder. Pork supplies declined in Jun/July and early August due to a combination of lower slaughter and lower carcass weights. We estimate that since early May pork supplies are down 9%.
- Uncertainty about California Prop 12 rules initially resulted in inventory depletion and buyers sitting on the sidelines. Then the rule clarification meant that product in inventory could be sold in California through the end of the year. This further compounded the seasonal shortage as freezer supply that would normally be used to offset the seasonal decline now is being carried to fill California demand.
- Bellies, trim, and hams have seen the biggest price gains while fresh pork prices, especially butts, have experienced the normal seasonal decline post July 4 holiday.
Full Report
Pork Cutout Climbs On Seasonal Demand, Short Bought Buyers, Lack Of Frozen Supply
The pork cutout has been moving higher in the last few weeks. That is seemingly surprising market participants that for one reason or another decided to ignore seasonality. By far the biggest contributor to the gains in the cutout has been the belly primal. In part this is because bellies were extremely under valued for much of the year and prices remained under pressure through May.
Traditionally belly prices start to gain some traction in the spring. However, this time around, the combination of slower sales at foodservice, ample freezer inventories and uncertain demand in California had buyers sitting on the sidelines. That change in June.
Since June 8, the value of the pork cutout has moved up about $30/cwt (+35%). More than half of the increase is due to higher prices for bellies. At the end of the week, the value of the belly primal was pegged at $181/cwt, 130% higher than just four weeks ago. During this period hog slaughter has been steadily moving lower, which is normal for this time of year. In early May weekly hog slaughter was 2.465 million head. The average weight of a hog carcass at that time was about 216 pounds.
Hog Slaughter
For the week ending July 1, hog slaughter was 2.332 million head. It was under 2 million head during the holiday week. This week it was 2.34 million head. The decline in slaughter has clearly resulted in less product available on a daily/weekly basis in the spot market. Hog weights have also declined during this period, which impacts the total tonnage available as well. We think the average hog carcass weight currently is running at around 209 pounds (ignore the USDA trend estimate of 212, it will be revised lower). That’s a 3% decline in production before we account for the lower slaughter. When we account for both slaughter and weight, pork production is down about 9% compared to where it was in early May. Much has changed in spot supply dynamics, which happens just about every year and buyers always do well to remember.
California Prop 12 and Frozen Inventory
But what about Prop 12 and those big freezer inventories? It is probably not a coincidence that belly prices started to gain traction once the rules about Prop 12 implementation and handling of inventories started to be clarified. Suddenly, having a big freezer inventory of bellies was not a curse. It offered suppliers that use frozen bellies the ability to continue to sell into California through end of the year. If previously bellies were being offered spot because of how much there were in the freezer, now that freezer supply was transferred into the future and spot availability dried up. Buyers that were counting on plenty of spot supply now have to scramble a bit. Starting July 1, production that does not comply with Prop 12 now has to find another home. Eventually that will be something that catches up with the belly market. But in the near term, we are at seasonal lows in terms of production. And this is a good time to sell bacon at retail. Last week, USDA had retail bacon features up 31% vs. year ago and while prices were under $5/lb., 13% lower y/y.
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.
