Lower Weights, Seasonally Lower Slaughter Supports Cutout Gains

Pork Supply Outlook in 2022 and Forward

Pork production last year was 27.7 billion pounds, 2.2% lower than the previous year. Our current forecast is for production this year to be 27.1 billion pounds 2.1% lower. But even as overall production is expected to be lower, per capita availability/consumption is expected to be no different, if not slightly higher, than last year.

China has significantly reduced its purchases of U.S. pork, leaving more product in the domestic market. The export story has been a major growth factor for the U.S. pork industry in the last 20 years. That is why talking about pork production without talking about exports will always be incomplete. Pork production in the last few years has been no different than beef production and yet domestic consumption has been consistently lower. That’s because a larger share of U.S. pork production goes to export. That is a share that has grown much faster than other proteins. Since 2000 U.S. pork exports have increased fourfold while beef exports have increased 36% and broiler exports have increased 50%.

Pork production in 2023 is expected to increase by just 0.5%. That is mostly due to improved productivity than any change in the breeding herd. Where exports go will be a more critical factor. USDA thinks next year pork exports will be 6.5 billion pounds, about 110 million pounds (-1.6%) lower than this year. With EU production shrinking and high feed costs limiting growth in other regions, that may be too dim a view of export demand. Our forecast is for pork exports in 2023 to be 1% higher.

Summer Market Situation and Outlook

Hog slaughter last week was estimated at 2.372 million head. That is about the same as the previous week but 2.9% lower than a year ago. Seasonally slaughter declines in late June and July and that is expected to be the case again this year. In a couple of weeks, we will get the results of the USDA Quarterly ‘Hogs and Pigs’ report, offering an updated outlook for supplies this summer and fall. But if the March report is any guide, we should expect weekly non-holiday slaughter in the next 4-6 weeks to run about 1.0% to 1.5% lower than the previous year. This would imply weekly slaughter sub 2.3 million head by the end of this month and in July. Slaughter data in April, May and early June have come in a bit higher than what the USDA March report suggested. Weekly slaughter during this period averaged about 2.3% under a year ago compared to the 3.5% decline we expected based on the USDA inventory survey.

Summer Supply

While the supply on the ground may have been higher than initially thought, there are signs that producers have become more current. This is evident in the cash market price, which is near year-ago levels. That is also the case for the weight of hogs coming to market, at least hogs owned by producers. For the week ending June 10, the average weight of producer-owned barrows and gilts was 212.8 pounds/dressed carcass, 0.5% higher than a year ago but 2 pounds less than a month ago. Last year weights were down sharply in late June but in other years weights have declined at a more gradual pace. This will be one factor dictating the near-term price trajectory. But while the weight of producer-owned barrows and gilts is close to what it was last year, the weight on packer-owned livestock remains well above last year. For the same period, we calculate carcass weights of packer-owned hogs to average almost 222 pounds, 2.9% higher than a year ago.  Packers now account for over 40% of the hogs coming to market to the increase in this category has a notable market impact.  

Summer Demand

Fresh pork demand has not been as good as it was a year ago. However, it is still good from a historical perspective. The loin primal value has been slowly improving and with Father’s Day and 4th of July ahead of us, loins should find some support. But even as loins, and fresh pork in general, usually finds support at this time of year, the timing varies greatly. Lower y/y prices in May and high prices of competing products, especially ground beef and chicken breasts, should also be a supporting factor. Processing items should also contribute to the cutout. Although the situation this year is very different from last year as processors have more inventory on hand and high prices earlier in the year have helped ration out demand. Hams, bellies and pork trim have been all trending higher in the last four weeks and will lower slaughter futures markets are counting on further improvement.

Price Charts

Forecasts