Excess Pork Supplies Weigh on Market, Rabobank Says

( National Pork Board and the Pork Checkoff )

Excess pork supplies are weighing heavy on hog markets. In the August Rabobank Agribusiness Review, analysts say weaker demand and ample hog supplies will continue to limit the upside in lean hog values.

Harvest capacity is getting closer to year-ago levels, but labor constraints are limiting packers’ ability to fully optimize carcass values, the report explains. 

“Efforts to euthanize pigs and find alternative plants to process market-ready pigs have helped reduce the backlog of hogs in recent months and will help offset larger hog supplies this fall,” the report says. 

Still, analysts are concerned that shackle space will be a constraint this fall, further pressuring prices. Early efforts to liquidate both heavy- and light-weight hogs should limit he price impact.

“While high-cost producers that sell into the negotiated market will face sizable losses, operators with a more active risk management strategy and/or formula pricing should be able to navigate through the coming months with modest profits,” Rabobank says.

Pork carcass values remain below average
Analysts point out that pork carcass values have recovered from early July lows, but they are still 18% below year-ago levels. Labor restraints continue to keep belly and ham prices depressed as further processing operations are more challenged now.

The continued disruption in foodservice and catering is reducing demand for further processed items. However, early interest in holiday hams appears strong, analysts say. 

“Pork regained some retail support in front of the Labor Day holiday, which should help support loin and rib values and help clear stocks,” the report says. “As supplies increase this fall, however, we continue to expect ongoing pressure on the cutout. Any additional weakness in export demand or additional foodservice disruption would naturally exacerbate this oversupply and result in price pressure.”

U.S. pork exports softened
COVID disruptions caused tight supplies in June, and caused disappointing June exports. But Rabobank notes that exports for the month were still 3% higher than year-ago levels at 233 metric tons. It was a drop from May, down 33%. 

“For the year, exports remain 27% ahead of a year ago, reflecting exceptional growth earlier in the year,” Rabobank says. 

Analysts predict a weaker dollar and improved pork availability will favor U.S. pork exports, but the weaker GDP growth expected in most markets and improved domestic availability of pork in China causes Rabobank to be less optimistic about exports over the remainder of the year. Analysts expect only 10% growth versus 2019.

Mexican hog prices are rebounding, but are still 22% below 2019 levels. Some smaller producers are shuttering their operations as the challenging market conditions limit returns, Rabobank says. Analysts expect additional herd contraction in the weeks ahead. 

“The counter-seasonal weakness in pork reflects not only ongoing demand pressures in foodservice, but also an increase in pork imports from the U.S.,” Rabobank notes in the report.

Feed costs continue to drop
The latest USDA numbers suggest corn prices will remain low for the next marketing year at $3.10/bu with corn for the feed industry at 5.9bn bushels. Soybean meal prices are expected to be at $290/short ton on average for the next marketing year, the report notes. 

Animal feed demand rose from January to June for both corn and soybean meal as compared to other years. Corn increased by 0.4% in the first half of 2020 and soybean meal increased by 0.7% when compared to 2019.

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