USDA Releases Livestock, Dairy, And Poultry Outlook Report

Improved Wholesale Pork Prices Widen Packer Spread in July

July was another month in 2023 when most pork producers would have been fortunate to break even. Federally inspected (FI) July hog slaughter, estimated at about 9.6 million head, was 3.2 percent higher than a year ago. Estimated FI pork production, at roughly 2 million pounds, was about 2 percent higher than in July 2022 due to lighter July 2023 average dressed weights. Seasonal heat and high feed costs contributed to weights averaging about 2.5 pounds below those of last July. While feed costs have moderated compared to earlier this year, they are still high relative to hog prices. Lighter dressed weights might also explain the relation of July slaughter to the 180-pound-and-over category of the June Hogs and Pigs report. The number of hogs that were slaughtered during the period when these animals achieved slaughter weight— which encompassed most of July—was slightly higher than the number implied in the June report. This suggests that some animals may have been pulled forward; that is, the slaughter of lighter weight animals lowered the already-lower July dressed-weight average even more. July prices of live equivalent 51-52 percent lean hogs averaged $73.92 per hundredweight (cwt), 12 percent lower than a year ago.

Wholesale pork carcass values averaged $112.17 per cwt in July, scoring another high for 2023 and continuing a summer surge that began in June. The figure below is notable because while the July cutout was almost 7 percent below that of July 2022, both June and July cutout values show departures from the sluggish pace that marked the first 5 months of 2023. Higher pork cutout values are likely driven by a seasonal component—vacationing consumers patronizing quick-service restaurants while traveling, combined with outdoor grilling of ribs, smoking picnics, loins, etc.—at the same time that high prices of substitute proteins (beef cuts in particular) are likely inclining consumers to substitute pork cuts.

The $8.42 per cwt difference between the cutout of this year (July 2023) and July 2022 is
disaggregated according to proportion, or share, of the carcass that each primal comprises in the figure below. The bars in the figure indicate that declines in the values of butt, ham, and rib 18 primals accounted for 89 percent of the $8.42 per cwt year-over-year decline in the July 2023 cutout value.

Increasing wholesale pork prices, compared with other relatively more expensive substitute
meats, seemed to have hit a seasonal sweet spot with consumers beginning in June and
continuing through July. This factor combined with lowerthanyearearlier July hog prices
resulted in higher per hog packer spreads relative to last year, even in an economic environment favoring lighter dressed weights. The July packer spread averaged almost $41 per head, 25 percent more than a year ago.
Third-Quarter Pork Production Lowered on Expected-Lower Average Dressed Weights
The third-quarter pork production forecast is lowered to about 6.5 billion pounds, almost 1
percent lower than production in the same period a year ago. The change was made on
expectations of continued-lower average dressed weights. Prices of live equivalent 51-52
percent lean hogs are expected to average $74 per cwt in the third quarter, almost 8 percent below prices in the third quarter of 2022. Hog prices for the fourth quarter of 2023 were raised to $63 per cwt, about 1 percent lower than in the same period of 2022. Total 2023 commercial pork production is expected to be 27.3 billion pounds, 1 percent higher than 2022 production. Forecast quarterly hog prices average to $62.13 per cwt for 2023, about 12.7 percent below average quarterly prices in 2022.
U.S.–Origin Breeding Animals as a Share of Weekly FI Hog Slaughter Has Been Elevated Since Early May
Iowa State University’s series of estimated returns to Iowa farrow−to−finish operations show that producers have been operating at losses since late 2022. More recently, major publicly- owned pork production companies have announced plans to reduce the size of their operations. One indicator that the U.S. pork industry may be downsizing—or at least the midst of a hard cull of its breeding inventory—is the rising share of sow and boar slaughter as a percent of total weekly FI hog slaughter, which has been apparent since late spring 2023.
The figure below shows the share of breeding animals (sows plus boars) as a percent of weekly FI hog slaughter, corrected for imports of Canadian sow and boars for slaughter. It is notable that from week 18 (ending May 6, 2023) through week 30 (July 29, the latest available), the calculated share of the breeding stock slaughter is mostly above a year ago and/or the 5-year average share of the ratio. Prolonged levels of elevated breeding stock slaughter—under circumstances of financial stress—are consistent with industry contraction. The industry typically reverts to lower percentages of breeding stock slaughter when pork market supply and demand are realigned, and hog production and pork processor profitability is restored.
U.S. Export Gains in 2023 Appear To Be Mainly at the Expense of Higher Cost European Pork
U.S. exports in June were about 584 million pounds, almost 10 percent higher than shipments last June. The June exports combine with those of May and April to yield a second-quarter export volume of 1.78 billion pounds, 10.6 percent higher than the same period in 2022. In 2023 U.S. pork appears to have gained market share in markets where European pork has either been dominant or very competitive: Japan, South Korea, the Philippines, and Australia, for example. Higher production costs, however, have reduced EU pork production this year, and EU exports have declined as a result. Eurostat data show that EU pork exports have declined more than 20 percent through May. Persistently-increasing energy costs and environmental restrictions are likely to keep European production costs high.
The 10 largest foreign destination countries and regions for U.S. exported pork in June are
listed below, together with associated export shares. It is notable that in June a higher share of U.S. exports went to Western Hemisphere nations (55 percent) than to Asian countries (40 percent).
Export forecasts for the second half of 2023 remain unchanged at 1.7 billion pounds in the third quarter and about 1.8 billion pounds in the fourth quarter. For 2024, first-half forecasts are unchanged as well: first-quarter exports are expected to be about 1.7 billion pounds, 1.9 percent higher than shipments this year. For the second quarter of 2024, exports are forecast at about 1.8 billion pounds, almost 1.3 percent below volumes exported in the same period this year. Total exports in 2023 are expected to be 6.9 billion pounds, more than 9 percent higher than in 2022. Total exports in 2024 are forecast at just under 7 billion pounds, about 1 percent higher than expected 2023 exports.