Source: MEATINGPLACE, 5/13/16

Pork and hog prices rallied throughout April on an expected increase in exports to China and continued strong domestic demand, but ample supplies are set to increase further and could eventually pressure margins, according to BMO Capital Markets analyst Kenneth Zaslow.

Average April pork prices increased 4 percent from the prior month and were up 17 percent from a year ago, the analyst noted in a research report.

Increased demand from Mexico boosted ham prices, but a collapse in turkey breast prices will limit appreciation in ham, he said.
Prices for fat trims have doubled since February and lean trims have increased by 87 percent since December, he said, as processed meat production ramps up for the summer grilling season. Further support is coming from restaurants offerings such as McDonald’s all-day breakfast, and Taco Bell’s breakfast value menu.

Zaslow predicted hog supplies will continue to increase by 2 percent in 2016, growing in the second half of the year due to the lower feed cost outlook, he said.

Looking further out, five companies (Prestage Farms, Clemens Food Group, Seaboard Triumph Foods, Prime Pork, and Moon Ridge Foods) have announced plans to increase industry processing capacity by 8-10 percent by 2018, Zaslow noted.

Pork packers have generated favorable profit margins in 14 of the past 15 years, he said.

“Industry processing capacity expansion through 2018 may structurally pressure processing margins depending on demand and hog supplies. The industry likely will need to develop additional export markets to absorb the incremental processing capacity as protein producers are already competing for domestic consumption,” the analyst wrote.

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