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.
- USDA thinks that pork production in 2024 will be up 1.9% from 2023 despite talk/expectation for a smaller breeding herd. For now it appears USDA thinks productivity gains will more than offset the decline in the breeding herd.
- In the near term pork prices are following the seasonal trend for this time of year. Fresh pork prices have performed better than expected to this point. There is growing uncertainty, however, about the price outlook after January 1, when California institutes third party verification.
- Normally February lean hog futures trade at a premium to December but in recent days that has shifted, with February trading at a discount. This illustrates the uncertainty about pork demand at the start of the year as well as speculation of more hogs than anticipated in the pipeline.
- The supply of pork in cold storage at the end of October was 14.5% lower than a year ago and 15.6% lower than the five year average. The lower freezer inventory is even more puzzling given reports of robust exports. In the near term pork spot supply remains adequate relative to the level of demand but that will change starting in the spring, at which time freezer inventories will come more into focus.
Peak Annual Supply Is Here. Plenty Of Debate As To What Happens Next.
In its latest supply/demand update, USDA projected pork production in 2024 to increase 513 million pounds (+1.9%) from 2023. Some of this increase is expected to go to export markets, with export forecast to increase by 216 million pounds (+3.2%). Still, much of the focus remains on that projection for more pork available given all the talk of negative margins and breeding herd cuts. The challenge in part is the way USDA does its forecasts. Producers may say that they will cut back and there may be coffeeshop guesstimates that the herd will be down 100k, 200k, 300k. But until that happens, USDA will not change its forecast. Private analysts, however, can change how they come up with a forecast whenever they want. They can also incorporate other factors that USDA guidelines preclude. Thus, there is a bit of a discrepancy in supply projections for next year and it will be interesting to see how that plays out.
What has changed to cause USDA to expect higher pork production in 2024? The last two quarters there has been a material shift in productivity. This has been incorporated in the USDA production forecasts. For the Mar-May period, the number of pigs saved per litter was estimated at 11.36, 3.3% higher than the previous year. The pig crop for the quarter was estimated at 32.951 million head, 1% higher than the previous year. Weekly hog slaughter since the first week of September has been about 2% higher than a year ago. This suggests that the pig crop may have been understated. For Jun-Aug, the inventory survey pegged the pigs saved per litter at 11.61, 4.3% higher than the previous year. The pig crop for the Jun-Aug quarter, and thus potential slaughter for the winter, is expected to be up 0.4%. Given the revisions that will be likely made to Mar-May crop, is it reasonable to take the over on the Jun-Aug crop as well?
While one can choose to focus on the potential decline in the breeding herd, we should not forget the recent shift in productivity. As the charts above illustrates, the pigs saved per litter increase may appear big . In reality, it brings them back to the pre-COVID trend. The second chart shows that productivity gains have allowed producers to maintain pork supplies in the last three years despite the slide in the breeding herd. The takeaway from all this: the breeding herd only tells part of the story, at least until productivity settles into a more predictable trend.
Pork In Cold Storage: Less Than A Year Ago But Real Impact Will Not Be Felt Until Next Year
Pork supply in cold storage at the end of October was estimated at 435.9 million pounds. This is down 14.5% from a year ago and 15.6% lower than the five year average. Inventory declined 5.6% from the previous month compared to an average decrease of 3% in the last five years. Export demand continues to be good. Limited freezer inventory should continue to bolster demand for pork cuts, with packers able to stage product in cold storage before they ship to export markets in Asia and South America. Some of the inventory that was held back to fill California demand is being depleted. There is a lot of speculation as to what happens January 1. Ham inventories at 113.5 million pounds were 6.7% lower than last year and 23.8% lower than the five year average. Ham inventory declined 24.% from the previous month compared to an average drawdown of 19% in the last five years. Combined with robust exports to Mexico, this remains supportive of the ham market in the near term. Belly inventories were down throughout the summer and they declined further in September and October.
At the end of October, the inventory of pork bellies in cold storage was at 27.9 million pounds. That is 31% lower than a year ago and 2.3% lower than the five year average. The 6% drawdown in inventory from the previous month compares to an average 2% decline the last five years. Lack of inventory could come into play in the spring. But, in the near term market participants want to see how Prop 12 issues impact demand at the start of the year. Inventory of ribs remains tight but starting to improve. Total supply at the end of October was 70 million pounds, down 36.4% from last year and 22.4% lower than the five year average. Inventories increased 14% in October vs. previous month compared to an average build of 15% in the last five years.
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.