Exports Could Ramp up in Q4. Futures are Pricing a Robust Demand Environment

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Shipments of fresh, frozen, and cooked pork in August were estimated at 192,376 MT, marking a 7.1% increase compared to the previous year. This uptick follows a 14% rise in exports in July. Year-to-date, total U.S. pork export shipments reached 1.6 million MT, representing a 5.2% increase from last year.

Two markets significantly drove the increase in exports for August. Shipments to Mexico, the top market, totaled 82,139 MT, up 6.6% from a year ago, accounting for about 40% of the overall export increase. Surprisingly, shipments to Colombia surged by 85%, contributing an even larger share to the overall increase, despite Colombia being a small fraction of the Mexican market. In fact, in August, Colombia imported more pork than China. With Colombian authorities lifting some restrictions on U.S. imports, we anticipate an increase in U.S. pork and poultry exports to this market. Japan remains an important destination for U.S. pork; however, exports to Japan lagged, down 5.7% in August and 3.3% year-to-date.

We believe the pace of pork export shipments may have slowed in September, although it could still exceed last year’s levels. Weekly pork exports tend not to correlate well with monthly statistics due to gaps in reporting and the types of products being exported. Outstanding pork export sales through the end of the year are currently slightly ahead of a year ago but export sales to Mexico, the top market, are currently up as much as 33% y/y. While ham values have been in check to this point, the combination of higher sales to Mexico and seasonal domestic demand is likely to underpin ham prices in the next 4-5 weeks.

Pork Supply Falls Short of Expectations

The pork supply this fall was expected to be plentiful—some even considered it burdensome. However, that hasn’t been the case. Hog slaughter last week was slightly below last year’s level, and hog weights have increased more slowly than anticipated (see chart). Suddenly, pork buyers who were confident in their ability to secure product are now scrambling to find it. A prime example is the belly market, with primal belly prices reaching $150, compared to early forecasts of $110. Pork trim has seen a similar trend, with buyers on Friday paying as much as $84/cwt for 42CL pork, a 53% increase over last year.

Belly prices remain key for the cutout outlook through the end of the year. In 2022, belly prices saw a similar uptick in October on robust retail features only to fall under $100/cwt by mid December. December hog futures are currently priced at a little over $78/cwt. Even with a below normal spread for that time of year of around $13, this implies a cutout value for mid December of around $91/cwt. For that to happen, belly prices by that time would have to trade in the $125 area, maybe as high as $130 should loins and other fresh pork prices follow the seasonal trend. Clearly, futures are currently pricing both a more robust demand environment as well as a smaller than expected supply of hogs.

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