Pork Output Stable Amidst Declining Exports, High Costs and Unresolved Regulatory Issues

Barrow and gilt slaughter totals during November and early December have been close to what the USDA NASS September Quarterly Hogs and Pigs report suggested. Seasonally larger fall slaughter totals were bearish to pork cutout values and pressured hog prices lower.  

Pork cutout values and hog prices peaked in early August. Since then, growing slaughter hog availability and slaughter totals resulted in price pressure on both sides of the processor. Hog prices declined by 33% from the late summer highs to the end of 2022, while the pork cutout dropped nearly as much. The decline in hog prices resulted in Iowa State University’s estimated farrow-to-finish margins dipping into negative territory during September and remaining red throughout the balance of 2022.  Average losses during the period were about $15 per head. 

Ham and picnic values remain supportive to the cutout.  Ham markets were well supported during the second half of 2022.  Retail grocery buyers scrambled to secure volumes and offset expected shortages from whole bird turkey suppliers that were severely impacted by avian influenza. Simultaneously, ham exports to Mexico remained strong, further supporting ham primal values. Picnics have been used as a substitute in some processed meat formulations since mid-summer, and the extra demand has pushed prices to more than five-year highs. Prices for both ham and picnic primals are expected to remain particularly strong during at least Q1 2023 for the Easter ham production season.

Pork loin prices were pressured lower throughout the fall run of larger seasonal slaughter numbers and ended 2022 at prices even with a year earlier. Loin prices aren’t expected to get the boost they did last year during Q1 2022. Last year saw retailers increasing feature activity and consumer’s trading into pork loin chops from the record high-priced boneless skinless chicken breasts. At the beginning of 2023, breast meat prices will be less than half of their January 1, 2022 prices and by the beginning of Q2 2023 are expected to be 65% to 70% lower than a year earlier. 

Eventually, the supply of hogs and pork cuts will tighten modestly after the New Year compared to Q4 2022 production levels and prices should move seasonally higher. The price levels that hogs and pork items could achieve are still facing several headwinds that will determine their ultimate trajectory.      

Poor profitability for Chinese hog farmers and expected additional bankruptcy filings by large and very large Chinese pork producers will keep markets volatile as interruptions in their production system have taken place and could impact U.S. exports for at least the next several months. While 2022 pork shipment volumes to China were off by more than 50%, I don’t expect similar year-over-year declines in 2023.  If export totals remain near the 60-million pounds-per-month of carcass weight equivalent volumes that the U.S. shipped in late 2022, then 2023 could still be the third largest year for U.S. pork exports to China.

The U.S. Supreme Court heard oral arguments on California’s Proposition 12 on October 12, 2022. A ruling is hoped for before June 2023, but it could take until late September when the current court term ends. If the law is allowed to stand, only producers that have invested in newer pen-style facilities will be able to sell pork in California, severely limiting available supply and likely driving California retail pork prices up sharply while doing the opposite in the remaining 47 contiguous states.

Producers will not be in the mood to expand as high feed costs, high interest rates, high construction costs and uncertainty about requirements on sow housing space pile up.