The Quarterly Hogs and Pigs Report did not give much hope for a substantial rally in hog prices in the months ahead. Total inventory as of June 1 was pegged at 101%. The kept for breeding inventory stands at 97% but the market hog category was reported at 102% of last year.

So, butcher hog supplies are projected to run 2% higher for the rest of summer and then up 1% during the fall timeframe. There could be some capacity issues develop during the fourth quarter. That would be quite negative toward hog prices.

While the report continues to show a gradual contraction in breeding numbers, the cull is not occurring fast enough to curb production due to the improved efficiency in hog production. The bottom line is production and current projections are calling for rising production this year relative to last year. In addition, early projections are for higher production next year.

Breeding numbers were down 10% in Iowa, down 9% in Missouri and down 4% in North Carolina. Judging by this data I conclude that Smithfield is the only packer and large hog producer serious about culling the herd. Everyone else is in a “let the neighbor” do the culling while we remain in high gear. This strategy is not working well for the industry. Losses for 2024 are going to be huge. At some point the bankers will become heavily involved and force a severe cull.

Summer pork demand appears to have been hobbled by Prop 12 in California. Demand has been “off” this summer with little explanation. Last year a scramble for frozen product that could be used for Prop 12 demand support prices. That’s no longer the case. Prop 12 represents a major failure in leadership.

Regarding export demand the hog industry is currently heavily invested in Mexico. Mexico takes 40% of all U.S. pork exports that represents nearly 10% of total production. Any problems that disrupt the trade with Mexico would be very bearish toward U.S. hog prices. A nearby concern is hurricane Beryl that is currently bearing down on Mexico. A longer-term concern this the threat of trade wars that may develop next year if/when Trump wins the Presidential election. Mexico is the largest buyer of U.S. corn and pork.

The good news in the industry is the fact that corn prices are expected to continue eroding. Corn prices were down 10% during the second quarter. The only commodities weaker than corn during the quarter were cotton and cocoa. Given a trendline corn yield corn prices this fall should be trading well below $4. Overall, tough times lie ahead for U.S. pork producers.