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US Pork Outlook Report - August 2008

by 5m Editor
21 August 2008, at 12:00am

By USDA Economic Research Service - This article is an extract from the August 2008: Livestock, Dairy and Poultry Outlook Report by Richard Stillman.

Summary

The average price for 51-52 per cent lean live equivalent hogs is expected to be between $53 and $55 per hundredweight (cwt) in the third quarter of this year, and $47 and $49 per cwt in the fourth quarter. Despite expectations for increased second-half pork production, these price forecasts are 7.3 per cent and 21.7 per cent above the same period prices last year, and appear to be largely attributable to strong demand for US pork exports.

June pork exports came in at 466 million pounds, 113 per cent greater than June 2007, making first-half 2008 exports total 2.5 billion pounds, 68.5 per cent ahead of the same period last year. Plentiful US pork supplies and a low-valued US dollar, which made US pork prices attractive, are the likely factors driving foreign demand for US pork this year.

Pork Production Forecast Raised For Second-Half 2008

Higher-than-expected pork production in July and expectations of continued strong demand prompted USDA to add 75 million pounds to its estimate of commercial pork production for the second half of 2008. Second-half production is expected to be 11.9 billion pounds, a 4.6-per cent increase over the same period last year. For 2008, commercial pork production is expected to be 23.6 billion pounds, 7.4 per cent more than in 2007.

The average price for 51-52 per cent lean live equivalent hogs is expected to be between $53 and $55 per cwt in the third quarter of this year, and $47 and $49 per cwt in the fourth quarter. Despite expectations for increased second-half pork production, these price forecasts are 7.3 per cent and 21.7 per cent above the same period prices last year, and appear to be largely attributable to strong demand for US pork exports.

Slower Feed Cost Increases and Higher Hog Prices Slow Production Declines Next Year

Commercial pork production next year is expected to be about 23 billion pounds, 2.3 per cent below production this year. The pork production forecast in July was for a 3.1-per cent drop in 2009 production. Slower increases in expected feed costs and higher expected hog prices next year are the factors expected to moderate the pork production decrease in 2009.

USDA’s August forecast for the 2008/2009 average farm price of corn is $4.90-$5.90 per bushel, compared with July’s forecast of $5.50-$6.50. The lower expectations for corn prices next year reflect more positive supply conditions than were anticipated earlier in this growing season. Even with the lower forecast, however, the farm price of corn in 2009 is higher than the estimated 2007/2008 farm price.

The price for 51-52 per cent lean live equivalent hogs next year is expected to average $51 and $56 per cwt, about 10 per cent above prices in 2008. Lower hog supplies next year—from lower live imports from Canada and lower US farrowings - together with expectations for continued strong export demand — are the most likely factors pushing hog prices higher.

Next year, the combination of slower increases in feed costs and higher hog prices are expected to slow the liquidation rate of the breeding herd. Smaller declines in the breeding herd will likely lead to smaller decreases in 2009 farrowings and pig crops, with first-half farrowings resulting in smaller decreases in second-half 2009 pork production. Despite a smaller decline in production next year, however, second-half 2009 pork production is expected to be about 2.3 per cent lower than production in the second half of this year.

Double-Digit Increases Mark June, First-Half 2008 Pork Exports

June pork exports came in at 466 million pounds, 113 per cent greater than June 2007, making first-half 2008 exports total 2.5 billion pounds, 68.5 per cent ahead of the same period last year. Plentiful US pork supplies and a low-valued US dollar, which made US pork prices attractive are the likely factors driving foreign demand for US pork this year. First-half exports to the 10 largest foreign markets are listed below.

Despite higher US pork prices next year, US pork products are expected to remain competitive in foreign markets, relative to pork originating from other pork-exporting countries. US exporters are expected to ship 5.1 billion pounds of pork in 2009. This quantity, although 5.7 per cent lower than exports forecast for 2008, is more than 62 per cent larger than US exports in 2007.

US Pork Imports Lower In First-Half 2008

US pork imports were almost 69 million pounds in June, nearly 20 per cent lower than in June 2007. For the first half of 2008, imports were almost 15 per cent lower than in the same period last year. The same factors driving US pork exports are likely responsible for slowing imports: plentiful supplies and the relatively low value of the US dollar in international markets. Higher energy costs to transport pork to US markets also likely contribute to reduced competitiveness of imported pork in the United States.

US pork imports are expected to be lower in the second half of 2008, and for 2009 as well. Second-half 2008 imports are likely to run almost 7 per cent below the second half of 2007. Total imports for 2008 are forecast at 862 million pounds, almost 11 per cent below 2007 imports. Next year, imports are expected to be 850 million pounds, about 1.4 per cent below this year’s level.

Live Hog Imports To Decline Year-Over-Year in Second Half and Next Year

Live swine imports totaled almost 5.1 million head in the first half of 2008, 8.4 per cent above the same period last year. The year-over-year increase came in the first quarter of this year, however. The chart below indicates that slaughter hog and heavier-weight finishing animal imports have declined year-over-year, since the beginning of the second quarter in April. Less-than-15 pound pigs were year-over-year lower in June for the first time in 2008. Second-half 2008 imports are expected to be 4 million head, 25 per cent lower than the same period of 2007. Total 2008 imports are expected to be almost 9.1 million head, down more than 9 per cent from the 10 million head imported in 2008. Next year 7.8 million head will likely be imported, almost 14 per cent fewer than this year.

Lower US imports of heavier-weight finishing swine - weighing between 15 and 110 pounds - are likely a result of deteriorating producer returns in Canada from the relatively high-valued exchange rate of the Canadian dollar, and the high feed and energy costs that are forcing reductions in Canadian breeding herds. Also, higher costs of transporting heavier-weight animals to the United States are another factor likely curbing imports of these swine.


Per cent change in monthly US live swine imports, Jan-Jun 2008 versus 2007, by weight categories
Source: USDA/ERS

Lower US Slaughter Hog Imports Probably Linked to Higher Demand for Pork in Asia and Russia

The drop-off in US imports of Canadian slaughter hogs is likely connected to increased hog slaughter in major pork-producing provinces, and larger January-May Canadian pork exports. Canadian hog slaughter data for the first half of 2008 shows that while total Canadian slaughter is running slightly below the same period of 2007, hog slaughter in the largest producing provinces is running ahead of last year. First-half 2008 hog slaughter in Manitoba was 4.3 per cent greater than a year ago, 8.7 per cent greater in Ontario, and 2.9 per cent greater in Québec. Both Manitoba and Ontario are major hog-exporting provinces. Total first-half 2008 Canadian hog slaughter was less than 1 per cent below the same period last year.

On the pork export side, World Trade Atlas data for January-June 2008 Canadian pork exports show an increase of about 4 per cent over the same period last year. Most of the increase is accounted for by shipments to Hong Kong and the Philippines, while exports to the United States and Japan are off sharply.

Single-digit increases in Canadian pork exports and reduced US imports of Canadian slaughter hogs are likely connected. Higher year-over-year Canadian exports are probably more an indication of the enormous demand for meat from consumers in Hong Kong and the Philippines than a sign that the Canadian pork supply chain has resolved its overcapacity issues.

10 largest foreign markets for U.S. pork, January-June 2008, 2007
Country 2008 2007 Percent change
thousand lbs. thousand lbs.
World 2,492,654 1,479,329 68.5
Japan 655,838 553,954 18.4
China 313,075 88,389 254.2
Hong Kong 309,983 30,743 908.3
Mexico 281,917 220,887 27.6
Russia 228,507 94,936 140.7
Canada 198,360 160,556 23.5
South Korea 172,627 145,577 18.6
Australia 54,307 44,463 22.1
Philippines 43,733 8,004 446.4
Taiwan 26,068 23,999 8.6
Source: USDA\ERS. http://www.ers.usda.gov/data/meattrade/

Further Reading

- You can view the full report by clicking here.


August 2008