Red ink keeps getting deeperRed ink keeps getting deeper
Year-to-date hog prices are 17.1% lower than they were a year ago.
May 22, 2023
Economists at Iowa State University estimate the loss for hogs marketed in April at $49.47 per head, a record loss for any month. April was the sixth consecutive month with red ink. The Iowa State University calculated cost of production for April hog marketings was $76.59/cwt (live) or $102.12/cwt (carcass). This was the highest cost since September 2012.
The producer red ink is being caused primarily by low hog prices. Year-to-date hog prices are 17.1% lower than they were a year ago. During April the average live price for 51-52% lean hogs was $51.67/cwt, the lowest month since January 2021.
The low hog prices are being driven by low cutout values. Not only are hog prices low, but so are wholesale pork prices. Through last week, year-to-date pork cutout value has averaged $81.60/cwt, down 20.3% from the same period last year. In an indication of declining demand, the more expensive the primal, the greater the percent decline in price. Loin primals are down 16.5%, ribs are down 33.4%, and belly primals are down a staggering 48.7% year-over-year. For the lower cost pork cuts, picnic prices were up 10.3%, ham primals down 0.1% and butts down 5.6%.
What has happened to pork belly prices? Last Friday the average wholesale price for pork belly primals was $79.75/cwt, $4.84 lower than for hams. A year earlier pork belly prices were $74.67/cwt higher than ham prices.
During April retail pork prices averaged $4.727 per pound, down 3.2% compared to April 2022. During January-April retail pork prices averaged $4.76 per pound, down 1.0% compared to the same period last year.
Year-to-date pork production is up 0.8%, retail pork prices are down 1%, pork cutout value is down 20% and hog prices are down 17%. The obvious disconnect is between retail and wholesale prices. A 1% drop in retail pork prices given a 0.8% increase in pork production is not surprising. Nor is a 17% decline in hog prices given a 20% decline in pork cutout. What is out of line is a 20% decline in pork cutout value for only a 1% decline in retail pork prices. The wholesale-retail price spread in April was a record $3.298 per retail pound.
The farm-wholesale price spread in April was only $0.568 per retail pound, the lowest since March 2020.
Producers desperately need higher hog prices. For that to happen packers have to see higher wholesale pork prices. After all, packer margins are the tightest in four years.
The larger-than-expected drop in pork prices is surprising given that beef prices are so strong. Beef production is down 4.7% and choice beef cutout is up 7.02%.
The wholesale-to-retail price spread for choice beef ($3.304/pound) is virtually the same as for pork ($3.298/pound). Yet, the wholesale-to-retail price spread for choice beef is the lowest it has been since September 21. The spread for pork is record high.
USDA expects both corn acreage and yield per acre to be higher this year than last. USDA is forecasting $4.80 per bushel for corn during the upcoming marketing year. That is down $1.80 from the current year. USDA expects soybean production to increase 5.5% this year leading to nearly a 20% decline in soybean meal prices.
During the first quarter of 2023 U.S. pork exports were up 8.3% and imports were down 20.7%. USDA is predicting 2023 pork exports will be up 2.6% and imports will be down 20%. During the first quarter pork imports equaled 4% of U.S. pork production and pork exports equaled 23.5% of production.
As one would expect during a period of lower-than–expected pork prices, the amount of pork in cold storage is increasing. Stocks of frozen pork have been above the year-ago level for each of the last 13 months. In April pork stocks were up 9.9% year-over-year.
The futures market's hog contracts have been declining almost all year. The June contract closed Friday at $83.025/cwt, down $25.125 from where it started the year. USDA is predicting U.S. pork production to be up 1.4% this year, but down 0.1% next year. The June 2023 lean hog futures contract is $9.50 lower than the June 2024 contract.
Both domestic demand and export demand for pork has declined this year.
Thus far hog slaughter weights have been below 2022 levels nearly all year.
USDA's forecast of 2023 U.S. pork consumption is 50.7 pounds per person. That is 0.4 pounds less than a year earlier and 0.3 pounds less than their forecast for next year.
USDA's forecast of 2023 U.S. average for 51-52% lean live hog price is $56.50/cwt. That is $14.71 less than a year earlier and $5.50 less than their forecast for next year.
Less pork per person and lower hog prices is not an encouraging combination.
Will hog prices bounce back next year? I can't explain why the wholesale-to-retail pork price spread is so wide this year. It will need to shrink for higher hog prices in 2023.
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