November 2021 Pork Production Report Forecasts Lower Processing Demand For Hogs

The U.S. Department of Agriculture's Economic Research Service Situation and Outlook Report for November 2021 forecasts Q4 2021 commercial pork production to remain largely unchanged from October’s forecast of 7.2 billion pounds, which is a 4% decline from the same period in 2020. Although the report calls for lower processing demand for hogs to continue during the quarter, heavier average dressed weights are expected to offset the lower processing demand, leading to the mostly unchanged pork production forecast. Pork exports for 2021 and 2022 remain unchanged from October. The report forecasts 7.2 billion pounds for 2021, down about 1% from 2020, and 7.4 billion pounds for 2022, a 3% increase in shipments from 2021.

Constrained Processing Activity

November’s report notes that September 1 hogs classified in the 180-pound-and-over category should have been processed by October’s end. The estimated federally inspected (FI) slaughter numbers for September and October 2021, though, were notably down about 3% from the same time frame in 2020. The report states that declining processor hog demand is most likely behind the decrease and is caused by factors including reduced processing plant labor and court-imposed ceilings on line speeds imposed in several processing plants.

Industry analysis points to binding labor constraints as the underlying cause for the U.S. pork industry’s struggles for some time now, and indicates that the pandemic and measures to recover from the pandemic likely aggravated a long-standing labor shortage. Lower line speeds experienced at six processing plants are related to a federal court order that went into effect this year on June 30 that reduced line speeds from 1,402 head per hour to 1,106, essentially causing a 2.5% reduction in weekly U.S. pork processing capacity.

“Constraints on slaughter capacity/throughput likely explain much of the September-October decline in processor demand for market hogs compared with a year ago,” the reports states. “It follows that labor shortages in processing plants have both upstream and downstream effects.”

Live Weight Increases

From the week ending September 4 through the one ending November 6, live hog weights rose 11.2 pounds, a 4% increase. That compares with a three-year average of 4.6 pounds and 1.6% from 2017 to 2019. Contributors to the increase include cooler Midwest weather and new, nutrient-rich corn compounded into hog rations, as well as the slower pace of hog processor demand. The report notes that as processor purchase rates slow, market-ready hogs that would have been purchased and processed continue feeding and gaining weight while awaiting processing.

The report says downstream impacts from short-handed processing plants are viewable in widening price spreads of deboned pork cuts, which require larger labor allocations, and bone-in pork cuts. For September and October 2021, the ham price spread averaged $138.62 per hundredweight (cwt), up nearly 19% from the same period in 2020 and up a notable 131.5% from 2019.

Declining Hog Prices & Pork Exports

The report forecasts that Q4 2021 prices of live equivalent 51 to 52% lean hogs will average $57 per cwt, down from October’s $65 per cwt forecast. U.S. pork exports for September, meanwhile, totaled 510 million pounds, a 6.3% decline from 2020, while 3Q 2021 exports reached 1.5 billion pounds, 5% off from 3Q 2020. About 8% of the commercial pork the United States exported in 3Q 2021 was directed to Mexico, and 58% went to Western Hemisphere nations.

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Source: USDA