The USDA’s Aug. 22 Cold Storage report held bearish demand implications for the hog and pork sector. It stated ending-July pork stockpiles held in U.S. freezers at 529.3 million pounds. That was only 14.4 million pounds less than the year-ago total and just 8.1 million less than the June 30 result. That compares to a 10-year average July drawdown of over 24.8 million pounds.
Given the big cutbacks in hog slaughter and pork production experienced last month, this implies a stunning lack of interest in supplemental supplies, which in turn has negative implications for pork demand.
As discussed previously, we believe soaring hog and pork prices in the February-April period and again from early June through mid-July stifled underlying pork demand at critical points in the marketing year. The pork belly market offers an excellent example on this point.
The Cold Storage report stated July 31 U.S. belly stocks at 64.7 million pounds, which is the highest late-July figure since 1999. In fact, it more than doubled the mid-summer totals posted in each of past four years. It suggests the late-summer market will be well supplied with bacon, which in turn implies little upward price pressure in the near future.
The hog and pork industry is now anticipating a September bounce. Indeed, as pointed out last week, one might reasonably argue that the market could post an early second-half low in the near future, then work sideways to higher during autumn. Much depends upon demand strength in the wake of the recent breakdown.
A quick resurgence would certainly favor the bullish view. However, given the damage to demand implied by the Cold Storage data, we’re inclined to think the anticipated September rally will be relatively subdued and will be followed by a more normal drop to fresh lows later in the November-December period.
Editor’s Note: Dan Vaught is a livestock economist for Doane Advisory Services, St. Louis, Mo. Doane distributes a number of timely, relevant newsletters to farmers that contain expert commentaries and market advice. For more information, call 314.569.2700 or go to: www.Doane.com.