But even as the pork export outlook appears to be quite positive at this time, the reality is that there is plenty of meat protein coming to market currently, and likely for the remainder of this year. Combined beef, pork and chicken production for the last reported week was up 78million pounds (+4.3%). Higher exports will be necessary to absorb some of this increase but retail and foodservice demand in domestic markets is just as important. Competition in the retail meat case will be particularly stiff. Part of the reason for the weakness in the spot market for pork is the notable slowdown in retail feature activity. It has impacted pork bellies the most but other items, particularly loins, have struggled as well. Hog numbers remain big. Weekly hog slaughter last week was 2.534 million head, 3.3% higher than a year ago. The two new pork plants are slowly increasing production and last week we saw the largest daily slaughter on record at 461,000 head.

       Last week’s Quarterly Hogs and Pigs report from USDA (National Agricultural Statistics Service) gave considerable insight into the supply prospects in the U.S. hog/pork sector well into next year. Today, we provide some longer-term perspective by extrapolating on that report and incorporating the preliminary analysis of the Livestock Marketing Information Center (LMIC) for late 2018 and ‘19. On an annual basis, U.S. commercial pork production this calendar year is projected at about 25.7 billion pounds, up 3.0% year-over-year. LMIC forecasts for 2018 and 2019 are for annual increases of 2-4% and 1-4%, respectively. Turning to quarterly production levels (see graphic below), year over year increases are expected throughout 2019. Over the next few years, the largest percentage increases in output could be in the fourth quarter of 2018 (the mid-point of the forecast range for that quarter is for a 4.5% year-over-year jump).

      The wholesale value of pork bellies had been under pressure in 2015 and 2016 due to record large pork production and the absence of dominating marketing efforts from the foodservice/restaurant sector or prominent branded pork product marketers. That changed early this year, with several fast food chains featuring bacon as a condiment on sandwiches or burgers, or even putting bellies on the menu as an entrée. Wholesale belly values in the last quarter of 2016 were down 16% from a year earlier, but year-over-year comparisons for the first quarter of this year showed a 20% increase. The spring quarter comparison was also up 20% from a year earlier and summer quarter belly prices were up 54%. Belly prices have collapsed in the last two months, however, with early October belly prices close to 20% lower than they were 52 weeks earlier. This should set the stage for grocery store pork prices to move parallel to trends during the fall months of recent years.

       The combined inventory of beef, pork and poultry in cold storage at the end of September was 2.496 billion pounds, 2.2% higher than the previous year and the largest amount of meat in cold storage since October 2002. Red meat and poultry inventories have increased at a faster than normal pace in the last two months. September freezer stocks rose 2.5% from the previous month compared to an average 0.6% M/M increase in the last five years. But this is notnecessarily a bearish indicator. The increase in production has bolstered US exports and this implies that more beef, pork and chicken needs to be accumulated in storage before it is loaded in containers for export. We continue to urge that the cold storage numbers need to be viewed in the broader context of expanding US trade. The large inventory in cold storage underscores the need for robust US meat protein demand, both from domestic and export sources.

      The seasonal increase in pork inventories during September outpaced that of recent years. This may be viewed as bearish by futures when they open today but in our view some caveats are warranted. At the end of September there were 616.3 million pounds of pork in cold storage, a 7.1% increase from the previous month. In the last five years September stocks have increased by an average 3.6% from August levels. Last year the m/m inventory increase was 5.5%. But consider what drove the m/m increase in pork freezer stocks. Ham inventories increased 13.8% in September compared to an average 7.8% increase in the last five years. However, the increase followed a slower than normal inventory build during August. One way to read this is that end users that normally put away hams in August delayed this in anticipation of increasing September supplies and lower prices. When we look at the Jul -Sep ham inventory build, 2017 ham freezer stocks are up 19% compared to an average 28% build in the last five years. Last year the ham build Jul/Sep was 32%. When viewed in thiscontext, the increase in ham cold storage stocks may not be as bearish as it first appears. Normally ham inventories are depleted in Oct-Dec as end users prepare for year-end holidays. Export demand remains a key wild card considering the large supply in cold storage and record pork production. Pork belly inventories increased modestly in September when normally stocks decline. However, August pork belly stocks were minimal so there was not much stock that needed to be depleted. It will be critical for the pork market to see some bellies move into storage during in order to be better prepared for any retail features. Last year a combination of aggressive features and limited cold storage inventories caused pork belly prices to rise sharply.