Through the end of the year, lower supplies of slaughter-ready hogs while confronting consumer resistance to pork price increases will likely force pork processors to pay higher hog prices, further pressuring processors’ price spreads, according to USDA’s Economic Research Service (ERS) November 2022 outlook.
Federally inspected hog slaughter reached an estimated 10.9 million head in October, a 1.5% decline year over year, consistent with the September Hogs and Pigs report, which estimated a 1.5% decline in the 180 pounds-and-over category.
October prices of live equivalent 51% to 52% lean hogs averaged $67.78 per cwt, 7.9% higher than 2021. Meanwhile, pork processors sold pork at lower year-over-year prices in October, with a wholesale pork carcass cutout averaging $101.15 per cwt, nearly 1.4% lower than last year.
Processing spreads show lower beginning in March 2022 and persist through October.
Processors’ spread= {[(wholesale pork carcass cutout + byproduct drop value) – base lean hog carcass slaughter cost]*(average weekly dressed hog weight/100)}
The ERS data shows that weekly values of the processors spread in 2022 have been below same-week values of 2021 in 28 of the first 43 weeks of 2022.
“This year, the average value of the spread through week 43 has been about $33 per hog, whereas last year over the same period the average was almost 20 percent higher, at about $41 per hog,” the report explains.
In October 2022, the spread averaged about $38 per hog, nearly 29% below the same period spread for last year.
Processors faced a perfect storm in October 2022, with lean hog prices increasing at a faster pace than wholesale selling prices of pork cuts. October’s hog prices averaged nearly 8% higher than one year ago, while processors sold 1.6% less pork and at 1.4% lower average wholesale values. This narrowing between revenues and costs has widened the year-over-year spread difference.
“Wholesale pork demand derives in part from retail demand, so it is notable that wholesale pork demand declined in October—indicated by lower year-over-year estimated federally inspected pork production sold at lower estimated wholesale carcass cutout values,” the report says.
Retail consumers are likely demanding reduced quantities of pork due to higher retail pork prices. October retail pork prices averaged $5.05 per lb., almost 5% higher than last year. Additionally, the U.S. Bureau of Labor Statistics reported in October that the Consumer Price Index for all items increased 7.7% over the past year before seasonal adjustment. Higher rates of consumer price inflation effectively reduces real income and often leads to lower demand for all goods.
