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Pork Signals: Long-Term Outlook

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Hog prices rallied quickly from the low of last November. Iowa-Minnesota market hog carcass weight prices rose from $40.13 per cwt on Nov. 18 to $73.95 per cwt on Feb. 20. Since mid-February, prices have declined again. There are two main reasons for these big price swings: pork bellies and hog slaughter. The good news is that, seasonally, hog prices should soon move back higher. Pork production always declines during the summer months, and that should bring hog prices back up, close to the February high.

The winter price rally had a lot to do with pork belly prices. The wholesale price of 12 lb. to 14 lb. bellies started the year at $144 per cwt and rose to $192 per cwt by mid-February before dropping back to $142 in early April. Pork belly prices usually peak during the summer, yet February belly prices were the highest in nearly three years. The atypical winter rally in belly prices was due to tight stocks. There were only 14 million lbs of pork bellies in cold storage at the end of January, which was the lowest for any month since September 2015, and the lowest for any January since before 1973. These low stocks reflect strong demand, not low supplies. After all, record hog slaughter means record belly production.

The hog price decline that started in late winter was driven by continuing high slaughter. Over the past 30 weeks, hog slaughter has averaged 4.33% above the year-ago level. Each of the past three quarters set records for hog slaughter during that respective quarter. USDA expects 2017 hog slaughter to be nearly 4% higher than last year’s record. Fortunately, new slaughter capacity is coming on line this year that will allow packers to handle the high numbers of pigs.

During the first two months of the year, pork exports were up 18% and pork imports were down 14% compared to January through February 2016. Pork exports are off to a strong start in 2017, thanks largely to Mexico. Prior to last September, Mexico had purchased more than 140 million lbs of U.S. pork in a single month only once, in December 2015. Mexico has now imported more than 140 million lbs of U.S. pork each of the past six months. Only one other country, Japan, has ever imported that much U.S. pork in a single month. It will take a 2.8% increase on total 2016 U.S. pork exports to break the record set in 2012.

Hog slaughter has been setting records because producers have been farrowing lots of sows. Over the past 11 quarters, June 2014 thru February 2017, the number of litters farrowed averaged 2.67% above the year-ago level. The March Hogs and Pigs report said farrowing intentions for this spring (March to May) were for an increase of only 1.4% and predicted summer litters (June to August 2017) would be 0.4% fewer than a year earlier. That might be less encouraging than it sounds. Farrowing intentions reports have underestimated actual farrowings in 10 of the past 11 quarters with an average miss of 2.5%. Even if USDA’s farrowing intentions numbers are correct, 2017 hog slaughter will easily break last year’s record.

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