Hog Futures Slump Following Reports of Processing Bottlenecks
Hog futures have dropped this week as market participants have gone on the defensive following reports of lower-than-expected slaughter and ongoing processing bottlenecks.
Reuters reported on Monday that rising COVID-19 infections among U.S. workers have forced meat plants to slow production and the government to replace slaughterhouse inspectors.
“Slaughter data for the last few days appears to support this,” said Len Steiner, president of Steiner Consulting, in the Daily Livestock Report on Wednesday. “Last night USDA put hog slaughter at 458K, about 20-25K less than we would have expected. On Monday, hog slaughter was 448K head and we think for the week slaughter will be under 2.5 million. This is about 6.5% lower than the previous year.”
Cattle slaughter has been lower than expected as well, the report noted, with slaughter in the first two days at 227,000 head, about 5,000 head less than a year ago.
However, the hog slaughter slowdown does not appear consequential for the cash hog market, Steiner said.
“Last week we saw slaughter run light for much of the regular work week, but packers were able to make up some of the shortfall on Saturday. Also, the year-over-year decline is not that far off from what the December ‘Hog inventory’ report implied. A weekly slaughter of around 2.5 million head is about in line with supply available. No wonder, therefore, that cash hog values have held up well and hog weights have been in line with historical levels,” he said.
What will happen with hog weights in the second half of January and first half of February?
“Normally we would expect weights to move sharply lower,” Steiner said. “If they do not, then it could provide some support to the argument that the slowdown in hog processing is causing producers to get backed up. For now, that is just speculation not supported by high frequency data.”
Rising COVID-19 cases and higher rates of absenteeism appear to be negatively impacting the ability of packers to process subprimals.
“This has added to the downward pressure in the hog complex, at least in the near term. With no labor to harvest/trim specific cuts, packers have little choice but to lower the price in order to generate export interest or get someone to put this product away in the freezer,” he said. “But this is nothing new, all one has to do is look at the extreme volatility in the value of the ham primal the last two years, especially the second half of last year.”
There is reason to be positive, analysts note. Fresh retail pork items are performing well, with loins and butts trading well above last year.
“Pork is very competitive at retail at this moment, with chicken breast meat hard to come by and ground beef prices up 25% in the last three weeks,” Steiner added.
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