A 1.9% year-over-year drop in the U.S. swine breeding herd, combined with ongoing productivity challenges, will limit 2022 U.S. hog slaughter and remain supportive to nearby markets, says Christine McCracken, Rabobank senior analyst, in the Rabobank Global Pork Quarterly report.
“Hog prices are 4% higher versus one year ago, helping to offset rising feed, labor and energy costs and dampening second half of 2022 industry expansion,” she says.
Still, producers remain cautious on herd growth given demand uncertainties in both domestic and export markets, as well as the anticipated cost of meeting sow housing regulations later this year. As a result of all the headwinds, Rabobank is lowering its 2022 U.S. hog production growth estimate from -0.4% to -2.8% year over year.
Firm Consumer Demand
Consumer demand remains firm despite higher prices, according to Rabobank’s data. Retail pork prices are down from February highs and are 3% below year-ago levels, but still 32% above the five-year average.
“Market strength reflects the 6.5% YOY drop in pork production YTD, as well as strong retail demand, especially given the high prices of competing proteins,” McCracken says. “Lower hog supplies are expected to pressure packer returns the through the end of the year, forcing operators to focus on efficiency gains.”
Labor issues have impacted the prices consumers are seeing at the store this year; however, McCracken notes packers should see some benefit from improved worker availability and the addition of faster line speeds at three U.S. pork plants. On the flip side, higher costs for distribution, packaging and labor will continue. Retail prices will begin to reflect these cost pressures, so expect to see some reduction in consumption or trade down to lower-cost proteins, Rabobank says.
Stable Exports
Rabobank notes U.S. pork is expected to “face stiff competition” in markets such as Japan and South Korea due to higher U.S. prices and the strength of the U.S. dollar.
January pork export volumes were down 15.7% year over year and down 13.7% year over year in value, analysts point out. As analysts expected, weaker sales to China caused overall pork exports to take a hit, with exports to China down 56% year over year. The loss in China was partially offset by stronger sales to Mexico up 38% year over year and the Dominican Republic up 22% year over year.
Things to Keep an Eye On
Going into the second half of 2022, McCracken says when it comes to the pork outlook, she is watching Brazilian corn harvest and planting progress in key growing regions in China, the European Union and the U.S. She’s also studying policy developments that could impact feed availability and/or trade, COVID developments and restrictions in major pork-producing and consuming countries and dislocation of supply or demand as a result of the Russia-Ukraine War. In addition, don’t take your eyes off foreign animal disease outbreaks and consumer response to higher-cost pork and the cost and availability of competing proteins, she adds.
More from Farm Journal’s PORK:
Rising Uncertainty Equals Weaker Global Pork Industry Growth in 2022
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