Markets

US Pork Outlook Report - April 2009

By USDA, Economic Research Service - This article is an extract from the April 2009 issue of Livestock, Dairy and Poultry Outlook Report. US pork production in 2009 is expected to be 2.4 per cent lower than a year ago, while both imports and exports were down in February.

16 April 2009

5 minute read

Summary

US pork production in 2009 is expected to be 2.4 per cent lower than a year ago, with live equivalent prices for 51-52 per cent lean hogs averaging $46-$48 per hundredweight (cwt). Pork exports were off 13 per cent in February, with shipments for 2009 expected to be almost 4.1 billion pounds. February imports of both pork and live swine were down sharply.

Quarterly Hogs and Pigs Points To Lower Pork Production

The Quarterly Hogs and Pigs published by USDA on 27 March 2009 showed that producers have reduced the March 1 breeding inventory by slightly more than three per cent, compared with the same date a year ago. Lower inventories of breeding animals and market hogs, in addition to expectations for year-over-year lower spring-summer farrowings, along with continued reductions in imports of Canadian finishing animals (feeder pigs and segregated early-weaned animals) strengthens prospects for reduced year-over-year pork production well into 2010. US commercial pork production this year is expected to be 22.8 billion pounds, 2.4 per cent below last year.

While lower hog supplies are expected to strengthen 2009 spring- and summer-quarter hog prices compared with first-quarter prices, April-September hog prices are likely to lag same-period prices of a year ago. Live equivalent prices of 51-52 percent lean hogs are expected to average $49-$51 per cwt in the second quarter and $50-$54 per cwt in the third quarter of this year.

Weaker consumer demand for pork – both domestic and foreign – is expected to contribute to reduced packer margins, likely resulting in packer bids for hogs that are or will average below year-ago levels. First-quarter USDA Estimated Pork Carcass Cutout averaged $57.49 per cwt, 1.6 per cent lower than a year earlier, at the same time that pork production was almost 3.5 per cent lower than first-quarter 2008. Lower wholesale pork prices, concurrent with lower pork production, points to weaker pork demand. This suggests that domestic consumers may be responding to recessionary conditions by reducing pork consumption, perhaps by substituting lower priced proteins in place of pork priced in the high-$2.90s per pound at retail.

Despite lower wholesale prices in the first quarter, hog prices averaged 6 per cent above a year earlier, implying a weakening of packer margins. To the extent that sustained consumer resistance to perceived high retail pork prices continues to squeeze packer margins, packers will likely resist paying higher hog prices, even as producers supply fewer hogs. Lower packer bids, if sustained in the face of relatively high producer costs, would negatively affect producer margins and could trigger additional liquidation in the North American hog industry.

Pork Exports in 2009 Expected To Be Strong

US pork exports in February were 341 million pounds, 13 per cent below a year ago. Cumulatively, US exporters shipped 664 million pounds of pork to foreign destinations in the first two months of 2009, almost 11 per cent below a year ago. While lower than last year, and thus a contributing factor to lower pork demand, January-February 2009 exports are more than 25 per cent above the same period in 2007.

Last year was extraordinary, with competitive US dollar exchange rates for most of 2008 creating strong incentives for foreign purchases of US pork, and with the brief appearance of significant exports to China and Hong Kong in response to urgent disease problems in China. Barring currently unforeseen random foreign supply and/or demand shocks, US pork exports this year are not likely to top those of 2008. But stimulative US monetary and fiscal policies are likely to keep the US dollar valued to maintain the competitiveness of US pork products abroad.

At 4.1 billion pounds forecast for 2009, 13 per cent below 2008 but 29 per cent ahead of 2007, pork exports this year are expected to be strong relative to export history, but not extraordinary.

Lower Pork Imports Likely Reflect Weaker US Pork Demand

US pork imports in February were almost 61 million pounds, 15 per cent below a year ago. Imports from Canada were off by almost 7 per cent, while Denmark shipped almost 25 per cent fewer pork products to the United States in February. Lower imports during a period of lower domestic pork production supports the contention that US consumers have reduced their consumption of pork, likely in response to the ongoing US recession.

Canadian Swine Imports Off Sharply

US swine finishers and packers imported more than 525,000 head of swine in February, almost 44 per cent below February 2008. Lower imports likely reflect reduced Canadian hog inventories brought about by ongoing industry liquidation, in addition to expanded capacity to finish and process hogs in Canada. It is also likely imposition of the US Country of Origin Labeling (COOL) law has made US swine finishers reluctant to import Canadian finishing animals, in light of some major US packers' stated unwillingness to process Canadian-origin animals.