Pork Belly, Trimmings Prices Track Below Year Ago on Softer Demand, Ample Inventories

Belly Market Discussion

Pork belly prices have not been as resilient as they were a year ago. In part, this is due to more supply than expected coming to market. High prices also appear to have rationed out some demand. We don’t have any insight on bacon prices at food service. However, we think that they are up by double digits compared to a year ago. Bacon is more a condiment than a core protein by fast-food operators. Therefore its demand is quite inelastic. Still, facing sharply higher food costs operators will tend to make some adjustments (cut corners). The result is the same, some demand destruction taking place.

We get some data on retail prices, both in the monthly CPI report and from the weekly USDA survey of retail establishments. According to the USDA-AMS weekly feature report, the May average bacon retail feature price was $6.57/lb., more than a dollar (+20%) higher than the previous year. For the week ending June 3, USDA reported a 30-cent decline but prices still remain on the high end of the range. Hog slaughter is expected to drop under 2.3 million head by mid to late June, but this week’s slaughter is still expected to be over 2.3 million head. And adding to the supply are the freezer inventories that end-users accumulated in the spring. This is also helping cap belly price gains in the near term as buyers can afford to stay off the spot market when prices rally.

Pork Trim Market Situation

Pork trim prices have so far failed to keep pace with the market a year ago. That is even as pork supplies coming to market have been close to last year. With the 4th of July business ahead and then Labor Day/school lunch purchases in August, there is a fair amount of debate as to what happens with trim values in the next 3 months. The charts below show a comparison of 72CL pork trim values to previous years. The charts are the same with one big difference – the first chart includes 2021 values while the second chart only shows 2022 vs. pre-COVID market (2017, 2018, 2019).

The point is events that took place the previous year tend to color expectations, and planning, for the current year. Last year several events propelled the pork market higher, including trim. There was a lot of uncertainty coming out of COVID waves in the winter, which prevented end-users from building inventory as they usually do in the spring. Pork trim in cold storage at the end of April 2021 was 41.3 million pounds, 15% lower than the 2017-19 average (pre-COVID). This is only raw pork trim in cold storage. We don’t know the amount of finished goods that processors/end users had on hand as they got ready for last year’s Memorial Day and then the surge in summer business.

Pork Supplies Through the Summer

Pork supplies are lower about every year in June, July and August. Slaughter declines and hog weights suffer as temperatures increase. That will be the case this year. It was also the case in 2021 and in 2017-19. What changes, however, is the demand side of the equation and how end-users are prepared to meet that demand. Getting caught short at a time when demand seasonally improves while supplies decline is something every buyer dreads (ask people trying to buy chicken breasts these days). Last year the result of that was a spike in 72CL pork trim prices in August, and then relatively high prices all the way into the fall.  This year it appears end-users have made sure to avoid a similar occurrence.

At the end of April 2022, the supply of pork trim in cold storage was 26% higher than the previous year and also 6.8% higher than the 2017-19 average. The supply of raw material in cold storage can be a proxy for finished good inventory building as well. Export demand and the labor situation also appear to be different this year than a year ago. Exports to China are currently running 60-65% below year-ago and for the year pork exports are expected to be down about 7%. This is leaving some additional product in the country that needs to be trimmed before it goes into commerce. It also appears packers are boning more hams, helping both generate more trim but also setting a ceiling for trim prices.  

Price Charts

Forecasts