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.
Highlights
- Ham prices have rocketed higher as market was once again reminded of the seasonality of supply during this time of year. Big orders to Mexico and other orders at the end of June, lower slaughter and processors returning to full production have resulted in a very tight spot market. Sharply higher prices in US and Mexico may impact sales in August, however.
- Loin prices trading sideways, with bone-in product modestly lower while boneless continues to be supported. Higher prices for ground beef and b/s chicken breasts should be supportive for prices post Labor Day.
- Belly prices also trending higher. USDA noting a sharp decline in featured bacon prices at the end of July, which should bolster sales.
- Carcass weights of producer owned hogs remain heavy, could add to the expected increase in supply this fall.
Full Report
Market participants have once again been reminded that seasonality is a fact of life in the pork business. Summer supply availability is more limited due to lower slaughter and decline in carcass weights. During some years, the supply reduction combined with strong demand can result in dramatic price increases, with 2021 and 2022 best illustrating that point. But even during years when demand is not particularly strong, the supply reduction has an impact. That’s the reason why we included 2019 in the chart below. That was a year when overall supply availability was ample and domestic demand was not particularly strong. Just as was the case this year, markets in the spring of 2019 were full of optimism. It was interesting to look back at that year as December 2019 futures at some point touched $90/cwt. But, when it was all said and done that December 2019 contract settled under $60. We’re not saying that will happen again this year but there is a reason you look at history and learn its lessons. The exuberance of spring (in 2019 driven in part by China ASF speculation) is eventually replaced by the reality of ample supply and static domestic demand.
Even in 2019, when prices were generally on the defensive, the pork cutout between July 3 and August 16 rallied about $15/cwt. The two items that drove the cutout that year: bellies (+11) and hams (+3). Demand from processors tends to be relatively inelastic in the near term. They have taken orders from customers and need to run production five days a week. If supply falls short of production plans, then higher prices are needed to get product bought. Sending people home is not an option. This dynamic is further exacerbated when you have long holiday weekends. This year, as was the case in 2019 as well, the 4th of July was on a Thursday. Processors were cautious in managing their supply needs during the long holiday weekend. Eventually, however, product flows normalized and we are now trading a more seasonal market.
Hog slaughter was higher than expected last week, estimated by USDA at 2.436 million head, the highest weekly slaughter since April. This should help producers get caught up but in the near term it also means more product available at a time when items like bone in hams hit the highest prices for the year. Seasonally hog carcass weights decline in the summer and then trend higher in the fall as temperatures drop and fresh corn starts to roll in. Supply pressures could become more of an issue if weights start at a much higher point in September. With more hogs in the pipeline than a year ago and less processing capacity available, producers may be forced to compete harder on price to get their hogs scheduled. In 2021, when hog weights increased sharply through the fall, cash hog values came under a lot of pressure, dropping from $103/cwt in early August to $55/cwt by late November. We are not saying that’s going to be the case this year but it underscores the risk when supply pressures start to build. The cutout to hog spread widened that year as a result. The cutout vs. CME index price spread at the end of last week was near $14/cwt, similar to what we saw at this time in 2021. That year the spread was over $20/cwt during certain periods in the fall.
One of the big drivers for the gains in the cutout during the last two weeks have been higher prices for hams, something we pointed out in our report on July 23. Last week the ham primal was $113.5/cwt but on Friday the value of #23-27 hams was over $120/cwt. In mid May, it took about 13.6 peso to buy a pound of US bone-in hams (0.82 ham price at 16.6 exchange). Today, you would need 22.4 peso to buy a pound of bone-in hams, a 65% jump. It does not take much deductive reasoning to expect sales to Mexico to slow down. Clearly, the sharply higher prices in the US are impacting prices in Mexico, evidenced in the latest quoted prices there which are up 41% since early June. No wonder market is dithering.
Price Chart
Forecasts
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.