Despite ongoing cost pressures, early signs signal expansion in the U.S. hog herd, Rabobank said in its latest Rabobank Global Pork Quarterly Report.
The December USDA Hogs and Pigs report offered few surprises but marked the first increase in the breeding herd in nine quarters. Although the inventory as of Dec. 1 was only 2,000 head above the prior quarter, it was up +0.5% YOY.
What does this mean for the U.S. pork industry?
“While subject to revision, this increase is likely a cyclical turning point in the sow herd. Given current plant capacity, costs of production and health challenges, we do not see a rapid expansion, however inventories have likely established a floor,” Rabobank analysts said in the report.
Also notable was the 1% year-over-year increase in farrowing intensions in Dec-Feb 2023 and the 0.5% ear-over-year increase in Mar-May 2023. This growth, along with gradual improvement in herd health should drive higher production by 2H 2023, analysts predict. Rabobank continues to forecast a 0.2% increase in pork production in 2023.
Analysts noted hog prices remained above year-ago levels throughout fourth quarter of 2022 and rallied post inventory report but have since traded lower. A backlog of about 800,000 hogs following recent Midwestern storms and lackluster pork markets are weighing on lean hog futures, now $10 off their highs. Pork prices also held above year-ago levels for much of Q4 2022 and have since moved lower.
Seasonally weaker demand for bellies (-22% YOY) and ribs (-12% YOY) are weighing on the cutout, while ham prices are strong (+40% YOY), the report said. Strong ham exports to Mexico and steady processor demand have kept domestic inventories low (-28% YOY) and remain supportive to price. Prices are moving lower seasonally but are expected to remain above historical averages through 1H 2023.
Stronger fourth quarter 2022 pork exports are boosting 2023 prospects. Exports were up 4% year over year in volume and 12% year over year in value in the fourth quarter.
“Strong volumes to China, South Korea and the Dominican Republic helped to offset weaker sales to Japan. Exports to Mexico are on pace for a record year, with November volumes flat and export value +39% YOY,” analysts said.
2022 exports are expected to be -10% YOY in volume (-277mt) and -7% YOY in value. Rabobank expects a 4% improvement in export volumes in 2023, if steady sales to Mexico continue and a recovery in sales to China.
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