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Pork Demand in Great Shape

17 February 2014

US - Pork demand in the US remains in great shape according to market analysts Steve Meyer and Len Steiner.

The pork cutout has held up quite well compared to year ago levels even as total pork production is running significantly above year ago levels

This statement may come as a surprise given all the talk about the impact of PEDv virus among a growing number of US hog producers.

And while hog slaughter since December 1 (last inventory report) has been for the most part flat, significantly heavier hog carcase weights have bolstered the supply of pork coming to market. Pork production last week at 463.2 million pounds was 4.6 per cent higher than a year ago and in the last six weeks pork production has averaged 457.6 million pounds, 2.2 per cent higher than the same period a year ago.

Slaughter and production numbers will likely decline compared to the previous week, in part because of weather disruptions in the Carolinas.

Hog slaughter on Wednesday was reported at 384,000 head and we expect total hog slaughter for the week will be somewhere around 2.08 million head, almost 2.8 per cent lower than the previous year. Even with this decline, total pork production will likely be steady vs. last year thanks to hog carcass weights hovering at around 214 pounds. 

Last year, average hog carcase weights were about 207 pounds. The 7 pound increase represents and additional 14.5 million pounds of pork coming to market, the equivalent of about 68,000 hogs.

So far, hog producers have been able to offset the impact of PEDv via weight increases but it is important to remember the lags between the time the virus hits a hog farm, causing producers to lose a significant number of baby pigs, and the time those pigs would have come to market.

The reason why PEDv remains a critical issue for the industry is that it is spreading.

For the week ending January 26, AASV reported 265 new cases. By comparison, weekly new cases in August and September (which is the time period corresponding to Jan - Feb period) were averaging about 32 new cases per week.

The magnitude of the disease simply is different, which is why futures continue to maintain significant premiums for spring and summer contracts. Also a significant risk factor going forward is the ability of producers to sustain big carcass weight gains during the hot summer months. Weather remains a big wild card for hog production in July and August.

Pork prices also have benefited from sharply higher prices for beef. The chart to the right shows the overall increase in the pork cutout (+$14/cwt vs. 2013) and the relative contribution of the various primals to this increase in the cutout. The gains have been broad based but the two main contributors have been hams and loins. Both these primals benefit greatly from improvements
in retail demand. In recent days we also have seen a sharp increase in the value of pork trimmings, with 72CL pork quoted last night at 87 cents/lb., +45 per cent higher than a year ago.

Trimmings account for a significant portion of these primals and have contributed greatly to the year/year gains. At this point it is hard to say if the big jump in trim values is related to the expected resumption of trade with Russia. Ham prices also have benefited from strong exports to Mexico, the main foreign buyer of US ham. 

Export demand seasonally improves going into the spring and summer and, if pork supplies fall short, they could be one more factor pushing pork prices higher.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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