Keeping pork storage numbers in perspective

Cheryl Day, Former Editor

February 29, 2016

4 Min Read
Keeping pork storage numbers in perspective

As expected with the winter months, weather events have disrupted the movement of hogs. This week’s slaughter total was 100,000 head less than market analysis anticipated as Saturday kill did not make up for the shortfall on Thursday. For the week, hog slaughter reached 2.211 million head, down 2.1% from last year, but 3.6% from the previous week. Slaughter weights have remained relatively flat from a year ago at an average of 284.6 pounds.

Packers’ margins are still profitable and all intentions are to keep it that way. Market watchers are reporting that slaughter numbers could be short this week, again. If the downward trend in slaughter numbers continues it is indication that pig numbers are dropping and not the actions of the packers.

Last Friday, the USDA National Agricultural Statistic Service released the January livestock slaughter data showing total hog slaughter at 9.744 million head, 0.2% lower than a year ago. Noteworthy, sow slaughter was higher after three consecutive months of decline. Average sow slaughter at 11,620 head per day was 3.8% higher than January 2015. Market analysts are asking if this is the beginning of the decline in the breeding herd.

Cold storage numbers perception

The USDA NASS recently released “Cold Storage” report shows record high inventory of pork, beef and chicken in freezers in January. On Jan. 31, the combined amount of beef, pork, chicken and turkey in cold storage penciled at 2.270 billion pounds, which is a reflection of the growth in production overall (refer to Figure 1).

A record amount of frozen pork was in freezers on Jan. 1. Pork in cold storage is up 17% from year-end 2015 but only 7% higher than a year ago. According to the USDA, total frozen pork inventories are at the highest level for January since 1915 with stocks of pork bellies up 13% from the previous year ago.

Still, keeping it in perspective, the amount of pork in cold storage is 41 million pounds more than last year due to an increase in the inventory of ribs. “Demand for ribs has been extremely strong and prices are quite firm. It does not look to us that ribs are backing up in the freezer, rather they reflect efforts on part of some in the market to use the freezer as a hedge for their spring needs,” wrote Len Steiner and Steve Meyer in “Daily Livestock Report”.

In comparison, at the end of January a total stock of frozen beef was also record high at 518.5 million pounds, 5.4% higher than last year and total chicken cold storage inventories were 824.8 million pounds, 13% higher than a year ago (refer to Figure 2).

Nevertheless, if meat and poultry exports struggles linger, heavy cold storage inventories are indication that the domestic market cannot absorb the additional supply, states Steiner and Meyer.

Consumer spending positive

As market analyst Steve Meyer has been reporting on the winter meeting circuit, domestic meat demand has been on an excellent run for the last three years. The U.S. Commerce Department says the consumer spending grew 0.5% in January — the largest jump in a month since May 2015. This should be good news for pork demand as retail pork prices fell to the lowest price since July at $3.793 per pound, making an attractive animal protein for consumers.

While pork exports have been slightly sluggish, a game changer would be if the Chinese stick to their statement and do not devalue their currency. Currently, the spread between China and U.S. hog prices is quite wide, explains Dennis Smith, Archer Financial Services. Presenting this example, Smith says “Current hog prices in China are just above 16 yuan per kilo compared to 5.85 yuan per kilo in the U.S. hog price. Hog prices in China are 185% higher than in the U.S.”

If this pricing trend continues, it will drive more pork to China from the United States and European Union. While it is great news that pork imports to China are likely to rise, the European Union has clear advantage with already capturing 70% of the market. Still, this could be a real market opportunity for U.S. hog producers, especially as several U.S. plants regained eligibility to ship pork to China. 

About the Author(s)

Cheryl Day

Former Editor, National Hog Farmer

Cheryl Day is a former editor of National Hog Farmer.

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