Pork Market Outlook: Soft Demand Pressures Fall Hog Prices

Pork Market Outlook: Soft Demand Pressures Fall Hog Prices

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Steiner and Company produces the Profit Maximizer report on behalf of National Pork Board based on information we believe is accurate and reliable. However neither NPB nor Steiner and Company warrants or guarantees the accuracy of or accepts any liability for the data, opinions or recommendations expressed.

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Lean hog futures have been drifting lower since summer and for now there is little conviction that a turnaround in demand is around the corner. Just as in 2023, when the post-COVID hangover, Prop-12 concerns and seasonal supply uptick pressured prices lower in Q4, December hog futures are under $67/cwt. Hog supply is expected to be lower than a year ago but that means little in the current environment. More problematic for producers in the near term is the bad combination of seasonally higher slaughter and weights, negative margins and underwhelming demand.

Hog slaughter the previous week was estimated at 2.619 million head and at the start of last week we anticipated slaughter at around 2.6 million again. However, hogs scheduled for later in the week appear to have been pushed out, likely because packers are having trouble moving boxes. The concern during July and August, when slaughter was well below 2.3 million head a week was how resilient prices would be in the fall when an additional 250-300k head per week would be harvested. It appears those concerns were well founded as the cutout has been steadily losing ground.

The seasonal increase in pork supply is only partly due to the higher numbers showing up. The average weight of producer owned hogs is now 217.9 pounds, about 4.3 pounds heavier than in early September and half a percentage point higher than last year. The time to slow down the pace of carcass gains was in September and required producers to be more aggressive in marketing hogs. But it is difficult to do so when a) packers are looking to move their own hogs first (weights of packer owned hogs have increased at a slower pace) and b) when packer margins remain compressed. The adage that "the only way out is through" is quite apt in the current environment. Producers will have to work through the supply glut & soft demand.

Producers that were well hedged and paid attention to the demand signals earlier in the summer should be able to weather the storm well. But the margin picture is quite negative and could get worse depending on the formulas used to price hogs. Currently futures are tracking closely with the 2023 market (see chart). That year, cash hog prices collapsed from near $70/cwt in late October to under $45/cwt by the end of the year. This highlights the downside concerns at the moment. Adding to the concern is the performance of key items that tend to underpin the cutout during this time of year. Ham values are usually supported by holiday and export demand. Sales to Mexico and shipments have been solid and yet that has done little to clean up the spot market. There is hope that retail demand will support ham values in Nov/early December, just as it did last year. But for now that remains a hope and the ham primal is at the lowest level it has been in several years.

Our pork market forecasts for next year hinge on the expectation that markets will start to stabilize in late winter/early spring. Part of the challenge for the market currently is that supply is increasing and there is little interest to put excess supply in cold storage. Boxing and freezing costs are high and so is the cost of money. Shelf life concerns also limit the ability to store product. That dynamic is likely to change in Feb/Mar/Apr, with spring demand ahead and prospects of seasonally lower supplies. But even as prices are expected to move higher from current levels, they are still expected to remain subdued compared to 2025 price levels.

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