Drastic increases in prices that consumers are paying for food and particularly animal protein items such as eggs have been top of mind within the sector over the last year, writes CoBank’s lead protein industry analyst Brian Earnest in the latest CoBank Knowledge Exchange’s quarterly report.
All-food inflation has been steadily easing this year, but still remained at 5.7% in June, which is more than double the 30-year average of 2.8%. Food away-from-home inflation is still at a frustrating 7.7%.
The problem? Higher retail prices will not always improve packer and producer performance. Despite elevated retail prices for pork and poultry during May and June, Earnest says wholesale values had trouble finding support at times.
“With markets returning less-favorable margins for animal protein processors, the focus has turned to improving operating efficiency with layoffs, plant closures and expanded automation,” he writes.
Meat and poultry supply has largely trended above prior forecasts through the quarter. He points out that this greater supply has weighed on prices at times, and boosted cold storage levels. Still, some of the production increases are in anticipation of what comes next.
“Overall, the animal protein space remains a proven winner with the consumer, which lends itself to optimism. However, elevated feed and other input costs will impede growth in the months ahead as dwindling consumer savings meet seasonal sluggishness at the culmination of grilling season,” he writes.
Abnormally Sluggish Pork Demand Weakened Hog Prices
Excess hog supply and weak pork demand placed hog prices in danger this spring. After a steady start to 2023, the CME lean hog index tumbled about $10/cwt., to $72 from mid-March to late April, Earnest writes. However, more favorable market conditions across the animal protein segment persuaded lean hog values to rise by 30% through May and June.
“It is worth noting that, now in the low 90s, hog prices are still about $30 lower than a year earlier, and not nearly high enough to generate expansion interest. Depressed hog values meant farmers’ share of retail pork was about 12%, down from a long-term average of about 14%, and down from the summer highs last year of about 16%,” he writes.
Sluggish domestic demand was the main contributor to weak pork and hog prices through much of the first and second quarters. Bacon, ribs and loins frequently found difficulty clearing markets early in the quarter, reflecting general “lackluster” performance. Market conditions improved by the end of June. Although still down about $15 year over year, the pork cutout landed in the upper 90s by gaining about $20/cwt. through the quarter, he notes. Export volume was up 12% year over year for March and 10% during April, providing moderate optimism for pork clearance across borders, he adds.
“USDA’s June 1 Quarterly Hogs and Pigs Report revealed the all hogs and pigs inventory about even with what was reported a year earlier at 72.4 million head, and down about 1% from the prior quarter. These numbers do not appear to be rebounding to previous highs reported in 2020, and we expect the aforementioned market challenges will dampen output growth for the sector nearby,” Earnest writes.
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