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US Pork Outlook - May 2011

by 5m Editor
17 May 2011, at 12:00am

Positive feeding margins for hogs suggest that hog prices have increased faster than feed costs, according to the latest Livestock, Dairy, and Poultry Outlook from the USDA's Economic Research Service.

Summary

Record-high hog prices are expected to more than offset sharply higher feed costs in 2011. Forecasts for 2012 show a 1.4 per cent increase in commercial pork production and little change in average hog prices. Pork exports in 2012 are expected to increase about two per cent, and retail pork prices will likely average in the high $3.20s to low $3.30s per pound. March 2011 pork exports were record-high at almost 491 million pounds, an increase of almost 33 per cent compared with the same period last year.

Higher Average Dressed Weights Partially Offset Lower April Hog Slaughter

USDA lowered its second-quarter pork production forecast slightly, due to a lower-than-expected hog slaughter in April. It is notable however, that the lower April slaughter number was largely offset by higher-than-expected average dressed weights. Average dressed weights continue to run ahead of a year earlier, despite sharply higher feed costs, suggesting that the market is rewarding producers for marketing heavier hogs. This contention is supported by USDA 2011 price forecasts for corn, soybean meal and live hogs that together indicate positive hog feeding margins for all quarters of 2011.

Positive Feeding Margins Are Result of Record-High Hog Prices

Positive feeding margins for hogs suggest that hog prices have increased faster than feed costs. This is a somewhat surprising contention, given that the average 2011 farm price of corn is expected to increase almost 52 per cent over its average price in 2010. But, as the figure below indicates, hog prices have increased sharply since 2009 and are expected to achieve a record high in 2011. Hog prices are expected to increase more than 15 per cent this year compared with 2010, after having increased almost 34 per cent in 2010.


Live equivalent price of 51-52% lean hogs, 1980-2011
Source USDA/ERS

Record-high 2011 hog prices are the consequence of modest-growth supplies and stronger demand. Pork production in the United States peaked in 2008 at more than 23.3 billion pounds. Also, in 2008, US pork exports were record-high at 4.7 billion pounds. While 2011 production is forecast at 22.6 billion pounds, up almost one per cent from a year ago, it remains below its peak.

US pork exports for 2011, however, are forecast at 4.7 billion pounds – equal to 2008 and well above 2010. Consequently, US consumers are expected to consume almost two per cent less in 2011, on a per-capita retail weight basis, than 2010. With the US economic recovery slowly under way, retail price data suggest that US consumers are willing to pay higher prices for slightly smaller ‘disappearance’ quantities of pork products. Retail pork price data show that first-quarter 2011 retail pork prices were 13.4 per cent higher than a year earlier. Along the entire pork supply chain, small gains in pork production have combined with strong foreign demand and robust domestic pork demand. Modest growth in supplies and strong demand are translating into hog prices high enough to leave producers with money in their pockets to cover other production costs, even after paying sharply higher feed costs.

Hog/Pork Forecasts for 2012 Appear in the WASDE

USDA’s pork supply and utilisation forecasts for 2012 show modest production increases (+1.4 per cent) and little change in hog prices from 2011. The level of US pork exports is expected to remain elevated but the rate of increase is likely to moderate to about 2 per cent from 2011. In 2012, domestic ‘disappearance’ next year is expected to be 60.5 pounds per person, compared with 60.3 pounds this year. Retail prices in 2012 are expected to back off slightly from prices this year and to average in the high $3.20s to low $3.30s per pound.

Exports Record High in March

March pork exports were almost 491 million pounds, the highest quantity of US pork products ever exported in one month. March exports were almost 33 per cent higher than a year earlier, with the five largest destination countries being Japan, Mexico, South Korea, Canada and China. First-quarter US pork exports were more than 1.24 billion pounds, 19.2 per cent larger than in the same period last year. A listing of the 10 largest foreign destinations for exported US pork products follows.

As the listing indicates, Japan remains the most important foreign destination, with quarterly exports increasing more than 20 per cent year-over-year. The increase is most likely due, in part, to the very strong exchange-rate value of the Japanese yen vis-à-vis the US dollar during the quarter. The yen’s value probably helped to partially offset higher US pork prices.

The dramatic increase in South Korean demand for US pork is due to recent FMD outbreaks in that country’s swine sector, as well as to relaxation of import restrictions following the outbreaks. US exports to South Korea are expected to abate later this year as domestic production begins to rebound. While exports to China increased significantly in the first quarter, it is worth noting that concurrent reductions in shipments to Hong Kong offset almost three-quarters of that increase.

Exports in 2012 are expected to be about 4.8 billion pounds, an increase of about two per cent. As in the past, most of the export growth next year is expected to come from Asia.

First-quarter pork imports were 201 million pounds, about one per cent ahead of the first quarter of 2010. Canada accounted for 78 per cent of US imports compared with 81 per cent last year. Smaller exporting countries – Mexico, the UK, Ireland, and the Netherlands – appear to have picked up shares of the US import market, at Canada’s expense. First-quarter shipments from Canada to the United States were 156 million pounds, down 2.5 per cent from the same period last year. Denmark accounted for 10 per cent of US imports in the first quarter, the same as in the same period of 2010. US imports from Denmark were almost 21 million pounds, up 5.8 per cent from last year. In 2012, imports are expected to be roughly the same as in 2011, or about 895 million pounds.

The United States imported 1.452 million head of swine in the first quarter of this year, about the same as last year. Almost all imported swine come from Canada. The ‘mix’ of animals imported in the first quarter differed somewhat from last year, with year-over-year increases in segregated early-weaned animals and breeding animals. Imports of feeder pigs weighing 7kg or more and slaughter hogs were lower in the first quarter than last year.

Swine imports from Canada in 2012 are expected to be slightly higher than this year. The modest expected increase is largely due to indications that the Canadian swine sector’s deep contraction might be bottoming out. Statistics Canada reported in April that the breeding herd of a major producing/exporting province, Ontario, had expanded strongly as of 1 April (6.7 per cent) after having increased modestly in January (0.88 per cent). Before January 2011, Ontario’s breeding herd had declined in every quarter since April 2005. Ontario pork producers have also stated intentions to increase farrowings, year-over-year, in the April-June and July-September quarters of this year.

Further Reading

- You can view the full report by clicking here.

May 2011