As grilling season gets underway, many hog producers are asking the same question: Where is the summer rally?
Despite strong export demand, lower hog weights and expectations for tighter supplies later this year, hog futures have struggled to generate the optimism typically associated with summer markets.
According to Lee Schulz, chief economist with Ever.Ag, the market’s disappointing performance may have more to do with patience than poor fundamentals.
“I think we’re still in the patience phase,” Schulz says. “It’s certainly been delayed relative to last year. A lot of times we use the rearview mirror and compare everything to last year. But if you look at general seasonality, there have been other years where we’ve seen a later seasonal response.”
Schulz says producers may be overlooking the fact that market expectations were much higher just a few months ago.
“We’re not that far removed from a couple months ago where we were trading much higher futures prices. I would argue the fundamentals haven’t changed all that much when we look at where supply and expectations for demand have been,” he adds.
What’s Holding the Market Back?
While supply-side fundamentals remain supportive, Schulz says the biggest challenge is demand uncertainty.
“The elephant in the room is income,” Schulz says. “We know consumers are certainly being impacted by higher gasoline prices, but it’s not just gasoline. Cost of living has been much higher, and that has been a drag on demand.”
Consumers continue to buy pork, but economic pressures have made them more cautious about spending, particularly on food away from home.
That concern mirrors findings from the latest Monthly Meat Demand Monitor, which showed financial pessimism among consumers at record levels.
As a result, traders appear reluctant to aggressively bid futures higher until they see stronger evidence that consumers can absorb higher meat prices.
What Would It Take for Hog Prices to Move Higher?
Schulz says the market is looking for confirmation that summer pork supplies will be smaller than expected.
“I think we’d certainly need to start to see a little bit of decline in slaughter for an extended period of time,” he says. “If that’s two or three weeks, it would help materialize what the size of these summer supplies really are.”
Warmer temperatures are already beginning to reduce hog weights, which could tighten production.
“As we’re seeing some warmer weather, we’re starting to see hog weights come down. That will have an impact on production,” says Schulz.
In other words, the market may need proof that supply reductions are actually occurring rather than simply relying on forecasts.
“I think from the supply side it’s more confirmation of some of those expectations that we had earlier in the year,” he says. “That supplies will tighten up and maybe even be smaller than the supplies last year.”
USDA Forecasts May Be Too Large
Another factor being watched closely is USDA’s production outlook.
While Schulz says USDA’s forecasts have generally been accurate so far this year, he believes second-half production estimates may ultimately be revised lower.
“If you look at the second half of the year, USDA would have a rather large forecast relative to some other expectations,” he says.
The biggest question mark centers on third-quarter production.
“USDA’s current forecast is for a 2.1% increase in production. Right now, we’re at about 1%. That would be a pretty large growth rate in the third quarter, and we’re likely to see a revision there,” Schulz says.
Some analysts believe disease challenges experienced during the winter may still be affecting supplies, potentially leaving fewer market-ready hogs than current government forecasts suggest.
The upcoming USDA Hogs and Pigs report could provide important clues.
“When we get the next Hogs and Pigs report, that will give us the size of those short-term inventories and inventories as we get into the fall,” Schulz says.
Exports Continue to Provide Support
While domestic demand remains under scrutiny, export demand continues to be a bright spot.
According to Erin Borror, vice president of economic analysis with the U.S. Meat Export Federation, export performance has been broadly positive this year.
Latin America remains a key growth engine, led by Mexico and several Central American countries.
Mexico, in particular, has become indispensable to the U.S. pork industry.
“Mexico is $21 per head. China is now $7,” Borror says. “There is a big difference there.”
Mexico purchases roughly half of all U.S. fresh bone-in hams, while both Mexico and China remain critical destinations for variety meats.
Those exports help support carcass value and remain a major component of overall pork demand.
The Market Needs Confirmation
Ultimately, Schulz says the ingredients for higher prices may already be in place.
A modest reduction in supplies, lower hog weights and continued export strength could all support higher prices later this summer.
However, futures markets are waiting for confirmation.
“I think if we start to realize a 1% reduction year over year in supplies, that is certainly supportive of hog prices. Ultimately, I still need that demand piece, the exports and the domestic demand, to continue supporting that production,” Schulz says.
For now, he says the market appears caught between supportive supply fundamentals and concerns about consumer spending. Until traders gain more confidence that supplies are tightening and demand can hold up, the summer rally many producers are waiting for may remain just out of reach.
