Steiner and Company produces the Profit Maximizer report on behalf of National Pork Board 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.
- Pork supply remains ample and it is only expected to increase in the next few weeks. Hog slaughter approaching 2.7 million head plus steady increases in hog carcass weights means market is well supplied and product available.
- Loins are slowly drifting lower although demand for boneless product has been above average. Demand from Asian markets has been strong, with S. Korea especially active recently. Seasonally, however, loins drift lower in Nov/Dec retailers fill the meat case with holiday items.
- Supply of bellies continues to outpace demand and prices need to adjust lower to encourage more product to go to cold storage. Pork trim prices also soft in the very near term. Both lean and fat trim usually move lower in Nov/Dec.
- Brisket bones have been very difficult to find. Slow sales of St Louis style ribs means packers have limited their production and thus generating fewer brisket bones.
Ample supply, uncertainty about Q1 demand keep prices in check…for now
When USDA released the results of its quarterly survey in September, expectations were for hog slaughter in the fall and winter to be near last year’s levels. The inventory of market hogs was less than 1% above last year’s levels and the pig crop for Mar-May was not very different from that. So far, however, those early estimates appear to be well understated. For the week ending November 4, hog slaughter was pegged at 2.677 million head. That is 4% higher than a year ago. Since the first week of September, weekly slaughter has been 420k head (+1.9%) higher than last year.
Hog carcass weights were well under year ago levels in the spring and summer, offsetting some of the increase in slaughter. But hog weights have been steadily increasing and weight of producer-owned hogs is now above last year’s levels. That does not suggest that producers are pulling hogs forward. In the near term pork supply is well above expectations and a key reason for pork prices, especially the price of processing items, below year ago levels.
Belly market under pressure
Wholesale pork prices peaked at the end of July, when the cutout hit $117.2/cwt. Last week USDA quoted the value of the pork cutout at $87/cwt, a 25% decline from the annual peak. As we look at the change in the value of pork items since late July, one item stands out – bellies. The value of the belly primal on Friday was at $108/cwt, a decline of $124 (-54%) compared to late July. This decline has accounted for 2/3 of the overall decline in the pork cutout during this period. So far guesses/expectations for a bottom in the belly market have proved to be premature and futures appear to be pricing more downside in the next two months.
Last year, the belly primal did not find a bottom until mid-December. However, there is no consistent pattern as to when belly prices stabilize. As we have noted in the past, more than other pork items, bellies rely on prices/sales of other products, especially at foodservice. If fast food traffic slows down and chicken sandwich and burger sales decline, so will sales of bacon, which acts more as a condiment than a primary protein option. The reason for the extreme seasonality (most years) is that supply far outpaces demand in the summer. However, too much supply relative to demand in the fall and winter means prices need to adjust lower to accumulate product in cold storage. Decisions on when to put product away and uncertainty about demand down the road tend to impact fall pricing.
Retail sales are facing headwinds as well. Retailers likely took advantage of the low belly prices that prevailed in the market through spring. This allowed for ample features and reasonably lower prices during July and early August. According to a USDA review of weekly retail features, the average retail feature price in July was around $5/lb., 18% lower than the previous year. These lower prices likely helped bolster sales and cleaned up spot supply. The result was a rapid increase in belly prices during July and early August. The same USDA report, however, pegged the average feature price last week at a record $7.2/lb.. That is 18% higher than a year ago.
It could very well be that this was a one week spike, but the trend in the chart above is unmistakable. There is a lag between wholesale and retail prices, as illustrated in the chart above. The flip side for market participants is that the recent pullback in prices will provide bacon processors with good retail sales pitches. As for foodservice operators, the pullback in price creates opportunities for next spring. This is especially the case as chicken appears poised to be more price competitive than hamburgers. And with all due respect, chicken breasts need all the help they can get from a flavor perspective.
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.