RaboBank: Pork Weak start to the year on larger hog supplies


Hog prices remain under pressure as YTD slaughter has run ahead of expectations
based on USDA inventories.

Average weekly slaughter of 2.5m through midFeb reflects a
up following lower Q4 2022 slaughter and packers killing ahead. Prices remain below
expectations given larger slaughter levels, (~3% more hogs than expected), resulting in

losses topping USD 10/head for producers. Prices appear to have bottomed in February as

recent slaughter levels
have normalized and are expected to move lower. Harvest weights
have also
dropped, further supporting our view that producers are current on marketings
and supplies are likely to move lower in coming weeks. We expect prices to improve

seasonally, yet with break
even costs still topping USD 87/cwt, margins will remain under
pressure through spring. Recent production losses are expected to drive more limited herd

expansion over the balance of 2023.

Pork prices are weak on largerthanexpected slaughter levels and large supplies of competing meat.

YTD pork cutout has averaged 11% versus yearago levels as sharply
lower belly prices (
38% YOY) weighed on the market. Weaker loins (9% YOY) and ribs (23% YOY) failed to offer support and more than offset a +20% YOY increase in ham values. Sizable increases in poultry supplies and heavy cold storage inventories (+15.6% YOY) are expected to limit upside in pork prices through spring, although current indications of improved retail support for pork should help the industry gradually eliminate the surplus.

December pork export volumes were up 5.5% YOY to 190,600 metric tons, and export values were +9.9% YOY. Higher exports to China/Hong Kong (+53% YOY) and Mexico (+9.7% YOY) helped offset weaker sales to Japan (24% YOY). The value of pork sold to Mexico in December was +42% YOY, driven by continued strong ham sales. The 2022 pork export volumes of 2.1m metric tons were 10.8% YOY, while the value was down 6.8%. We remain optimistic on 2023 export demand given tight global pork supplies, a weaker USD and lower US pork values.

Mexican hog prices have dropped in line with US markets yet remain 14% ahead of yearago. While production is slowly rebounding and is set to expand in 2023, prices are expected to remain above historic levels given high costs of production and tight supplies of competing proteins. Lower chicken and egg availability to start the year remain supportive to domestic hog prices and is also attracting stronger protein imports. The recent decision to reopen the market to pork imports from Brazil is not expected to have a significant impact on prices near term but could create added pressure on the market over time.