Belly Prices at Annual Highs in November

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The pork cutout value has surged to levels few expected for this time of year, largely driven by a sharp increase in belly values. On Friday, the belly primal was priced at $176 per cwt, while the pork cutout value reached $104 per cwt—up $16.7 per cwt (a 19% increase) compared to last year, with $11 of that gain coming from the higher value of bellies (see tables below). Since the beginning of mandatory belly price reporting in 2013, we haven’t observed a November belly price higher than in July or August—until now.

To better illustrate this unusual market situation, we’ve included a chart below. Though it may look like a busy “spaghetti chart,” this is intentional. The chart shows daily belly primal prices compared to the annual average. While average seasonal charts can often mask year-over-year variability, this chart shows the full range of annual fluctuations. For example, the first chart highlights that the 15-year seasonal average for belly prices in February and March is near the annual average, but the “spaghetti strands” reveal that in some years, prices were as high as 40% above the average, and in others, as much as 60% below it.

Fall typically brings greater consistency in belly prices, as foodservice demand cools down with the seasonal slowdown (cold weather, the start of the school year, etc.), and pork supply is near its annual peak. This is what makes the current market so unusual. Although there have been other years (like 2015 and 2020) when belly prices in October were significantly above the annual average, both years had low belly prices in the preceding spring and summer.

This brings us to recent market dynamics. Last spring and early summer, belly prices were particularly low due to uncertainty surrounding California demand and regulatory changes. This year, however, high prices in 2022 impacted retail and foodservice prices, leading to a stable wholesale market for most of the year. Notably, summer wholesale prices were lower than the long-term seasonal trend. This relative stability might have led to complacency, as evidenced by the rapid depletion of cold storage stocks in August and September. With expectations of ample supply and lower prices in the fall, many buyers were content to draw down their inventories.

Looking back, history often shows why “the cure for low prices is low prices.” For example, in 2018, belly prices were well below the annual average in August, only to surge in late September and October. In 14 of the past 15 years, November and December prices have been below the annual average, with 2018 as the exception (about 5% above). This year, the seasonal uptick in July and August was below historical levels but it was not as low as in 2018. In our mind this raises questions as to how sustainable current belly prices will be in the last two months of the year.

The main downside risk for the hog market now is that recent gains are heavily concentrated in bellies alone. Currently, futures are pricing a relatively strong belly market into December, around the $135 level. Although this is below current prices, it’s still high from a seasonal perspective. The key takeaway here is not to equate wholesale market movements with consumer demand for bacon. The wholesale market is especially sensitive to foodservice planning and promotions, which have long lead times. For buyers, low belly prices should serve as a warning to prepare for potential rebounds. This fall, the lesson has been costly.

Cold Storage Review for Pork Items Other than Bellies

The USDA survey is far more nuanced in terms of the pork and chicken cold storage holdings. The report provides details on cold storage inventories by product rather than catchall terms such as “boneless beef” and “beef cuts.”

The total supply of pork in cold storage at the end of September was 461.1 million pounds, 9% lower than the five-year average. Inventories increased 1% from the previous month.  Last year inventories in September declined. But, when we look at the long term trend, the September increase is still rather modest. As noted earlier, pork buyers depleted inventories in anticipation of higher supply and lower prices in the fall. Total belly inventory at the end of September was 17.8 million pounds, 40% lower than last year and five-year average.

Inventories in September dropped 31% from the previous month, the biggest September drawdown since 2011. Pork trim prices have also surpassed expectations in recent weeks, with slaughter falling short of estimates. Buyers have been forced to buy more in the spot market as seasonally cold storage supply is low at this time of year, this year more so than in the past. Pork trim in cold storage was 36 million pounds, 8% lower than the five year average. Drawdown was 6% vs. flat long term.

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