Though last month’s winter storm impacted the cattle and hog markets, recent declines in slaughter numbers are not tied solely to the weather. Fewer hogs available and surging demand have been underpinning hog and pork market values. When examining hog slaughter, strong January slaughter has been largely in line with the start of 2020, and well above 2019 levels. However, there’s been a slight decline in recent weeks, particularly compared to this time in 2020, when slaughter plants were running hard to restock retail meat cases as consumers loaded up their freezers when shelter in place orders fell into place. This makes year-over-year comparisons for the next month or so a bit difficult because of the unusualness of spring and early summer of last year. Cattle slaughter struggled more than pork during the winter storm, as areas such as the Texas Panhandle were less prepared, there were issues moving animals and plants had trouble running full shifts. Some of that gap was made up by running extra on Saturday kill, but it was not enough to recover fully. Slaughter for the week ending March 19 was down over 6% year-over-year, weighing on cattle prices in the near-term but supporting wholesale beef prices. For a while now, the inventory of cattle on feed has been front loaded with more market-ready cattle than typical.
Despite the decline in hog slaughter, hog carcass weights have been relatively steady, implying that the weather disruptions may not have resulted in a back-up of animals. This disruption may have slowed down the pulling of supplies forward. Carcass weights tend to play a strong role in the beef production equation, and although weights spent most of last year at elevated levels after the spring disruptions, they have followed the seasonal decline in recent months. The February weather event really impacted cattle condition, taking weights down and helping to bring them more in line with history. This will make weights more manageable for cattle feeders, particularly when looking at the high price of corn.
As with slaughter, we are entering a period of time where year-over-year comparisons for production may be less than fruitful. Both pork and beef production fell below year-ago levels during the winter storm as slaughter plants struggled to run full shifts and conditions made delivery of animals difficult. After recovering, both beef and pork production have declined below year-ago levels, but this is also comparing to the surge in production that we saw in the second half of March 2020. However, in the case of pork, we are looking at a bit of a slowdown in hog slaughter, combined with steady slaughter weights, which means we are going to experience a decline in pork production relative to current levels, not just comparing to 2020
The big story for animal protein so far this year has been outstanding demand; somewhat surprisingly, this may be tied to the pandemic. Many consumers who cannot participate in normal luxuries like dining out at nicer restaurants are instead treating themselves to higher-quality animal proteins in the meals they cook at home. When you combine this additional disposable income for those who were fortunate enough to keep their jobs with increased government assistance for those who were impacted, we end up with a beef demand picture that departs from normal recessionary behavior. The beef cutout has remained elevated when compared to historical levels, but the cattle supply side continues to weigh on the cash market, and even with elevated cutout levels it’s questionable if packers can pull more cattle through the system and push up cash bids.
The pork market has benefited strongly from increased demand, with the pork cutout on an upward trajectory to the historic levels experienced during the processing disruptions of last year and PEDv from 2014. As with slaughter and production, COVID-19 somewhat invalidates year-over-year comparisons, but this increase is well above established historical levels. Pork bellies and hams have largely been the driving force in this cutout spike, but all primals across the board are up. As vaccines become more widespread and the food service channel opens up more, we may continue to see strength in this market. We would normally see strength in the market from the upcoming grilling season, as consumers will be looking to get outdoors after being cooped up all winter and fire up their grills. However, there is a risk that current price levels could limit retailers use of pork features and somewhat dampen that typical bump.
Looking forward, pork producers are looking at a brighter picture, with stronger feeder and weaned pig prices over the last few months. The national weighted average carcass price for pigs is approaching $90/cwt as of this writing. The recent hogs and pigs report released by USDA was bullish for hogs across the board, with all hogs and pigs down nearly 2% from a year ago and below analyst expectations. There are always risks to this view of course, but so far 2021 is shaping up to be a much better year for pork producers. Cattle producers, on the other hand, have been struggling with the hangover of the pandemic. Fed cattle markets have struggled to pull together a spring rally this year, largely staying within a narrow range around $113-$114 over the last several weeks. However, there is optimism for fed cattle markets, particularly in the second half of the year. Feedlot supplies are expected to tighten in the coming months, and live cattle futures prices are reflecting some optimism for later in the year.
