By Kent Bang, Compeer Financial
Live hog prices have moved higher every day since Feb. 3. That is 58 days the CME Index consistently moved higher each day. The CME Index settled over $105 per carcass cwt. for the last 3 days in spite of lingering headwinds from COVID-19-related issues. With feed and production costs moving significantly higher over that period, the increase in value has been a savior for producers in the first quarter of 2021. It’s also provided great opportunities to extend profitability in the futures market.
What’s driving higher prices? Pork product demand. Let’s explore the factors that have affected demand and the headwinds that impact product delivery to our consumers today and in the future.
Domestic Demand
Domestic pork demand has been phenomenal so far this year. While PRRS and PEDv have impacted pork production since late 2020, harvest numbers show those losses have yet to affect pork availability. With all the issues harvesting pigs in March and April 2020 due to COVID, it makes more sense to use 2019 slaughter numbers as a comparison. Year to date through April 24, U.S. harvest has been 104.3% versus the same period in 2019, though numbers have slowed a bit since mid-March and April. In addition, carcass weights have been 2 lb. to 3 lb. per head higher in recent weeks, and even higher earlier in the year. My point is the higher prices aren’t a result of product shortage in the U.S. In fact, we have more pigs and pork.
Retail pork prices have been higher for the past four quarters, according to the USDA Ag Marketing Service. In fact, retail prices reported in the first quarter of 2021 were 11% higher than the same quarter in 2019. Higher retail prices with increased volume equates to stronger pork demand. Another indication has been the increase in wholesale prices so far this year. The wholesale value of every primal product has increased, accumulating to a 54% increase in cutout value, led by bellies +87%, ribs +61%, hams +54%, butts +52%, picnics +43% and loins +34%.
Export Demand
Export demand was softer in 2021 with January and February down 11%. Reports of sales since that time have been higher, but we will see those results soon with March exports reported around May 10. At any rate, it is clear the domestic demand for pork is much stronger so far this year. Continued production issues in Southeast Asia (China and others) might well change that trend soon.
In addition to domestic pork demand, government stimulus funds have been a boost to the economy. The extra money has brought more discretionary income into the hands of those who likely are buying more food and meat.
Headwinds have increased meat production in the U.S. Compared with 2019, first quarter 2020 pork production is up 6.7%, beef is up 7.5% and chicken is up 4.8%. Turkey production is down 3.9% but total meat production is up 5.5%, or about 1.4 billion pounds. Available labor to further process pork products in the U.S. is also a concern. Although the product is moving, typical processing margins are more challenging for packer-processors.
More from Farm Journal’s PORK:
Financial Benchmarking – How Do I Stack Up?
5 Key Steps to Manage Market Risk
Production Efficiencies and Costs Will Be Key in 2021 for Pig Farmers
