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US Pork Outlook Report - December 2005

by 5m Editor
19 December 2005, at 12:00am

By U.S.D.A., Economic Research Service - This article is an extract from the December 2005: Livestock, Dairy and Poultry Outlook Report, highlighting Global Pork Industry data.

USDA Economic Research Service

Pork Production Seasonally Higher, Hog Prices Seasonally Lower

In the hogs and pigs “crop year”, spring and summer pig crops are typically larger than those of the fall and winter quarters. Milder temperatures are still conducive to larger pig litters and increased weaning rates, even when the animals are housed in fully confined building systems. But with higher spring and summer pig crops come larger slaughters and higher pork production in the fall and winter quarters. With steady demand and increased supplies come lower prices. This year is no exception to this biological/meteorological/economical rule. The 2005 March-May pig crop, which was 1-percent greater than spring 2004, is currently being slaughtered by U.S. packers. So predictably, fourth-quarter U.S. pork production is seasonally higher, and hog prices are seasonally lower.

Fourth-quarter commercial hog production is expected to be about 5.6 billion pounds, or slightly more than 2 percent larger than a year ago. Compared with fourth-quarter 2004, two additional pounds of dressed weight per carcass, largely from moderate feed costs, are expected to contribute to the fourth quarter production increase in addition to higher seasonal slaughter numbers. Fourthquarter live equivalent prices of 51-52 percent lean hogs are expected to average between $45 and $46 per cwt, or 16 percent below the fourth quarter of last year, but still above breakeven production costs for most U.S. hog production operations.

Reduced U.S. Demand for Pork Likely a Factor in Lower 2005 Hog Prices

In addition to seasonally higher numbers of slaughter-ready hogs, lower year-overyear hog prices are also likely attributable to lower U.S. consumer demand for pork products. Weaker consumer demand is reflected in lower wholesalers’ bids to packers for pork products, with packers responding in turn by lowering prices paid for hogs. Last year, the USDA estimated pork carcass composite cutout--an indicator of wholesale value--in the fourth quarter averaged $74.35 per cwt. This year, the fourth quarter cutout is averaging almost 11-percent lower, at $66.99 per cwt. With fourth-quarter pork consumption this year expected to be 5.0 billion pounds, compared with 5.1 billion pounds last year, it appears that consumers (via wholesalers) were willing to pay more, for a larger consumption quantity in 2004.

In the fourth quarter this year, so far, lower wholesale values suggest that U.S. consumers are paying lower prices for a smaller consumption quantity. Taken together, wholesale values of fourth-quarter pork consumption suggest that U.S. consumer pork demand jumped in a positive direction last year, due in part perhaps to high-protein diets, while shifting in the opposite direction this year. The argument for lower U.S. pork demand appears to hold for previous quarters of 2005 also. U.S. pork consumption in 2005 is expected to be 19.1 billion pounds, which is about 2 percent below pork consumption last year. Wholesale values so far in 2005 fall about 2.3 percent below 2004; hog prices this year are, on average, almost 5 percent below last year, and second-half 2005 retail prices are expected to be about 1.2 percent lower than in 2004. With lower consumer demand for pork, at the same time 2005 pork production is expected to be about 1 percent above last year, foreign demand for U.S. pork products is likely a key factor supporting hog prices this year.

Exports a Main Driver of U.S. Pork Demand in 2005

In October, U.S. exporters shipped 222 million pounds of pork to foreign markets, almost 8 percent more than October of last year. Through October, total U.S. pork exports are almost 2.2 billion pounds, 24 percent greater than in the same period last year.

The U.S. pork export story, through October, has a familiar ring to it. As shown below, three key countries--Japan, Canada, and Mexico account for almost 72 percent of U.S. exports. Last year at this time, these three countries bought 78 percent of U.S. exported pork.

Japan’s accelerated demand this year for U.S. pork is largely attributable to favorable U.S. exchange rates, as World Trade Atlas data (see below) indicate that Japanese pork imports from all sources this year are up by less than 2 percent. The higher valued euro, has made Danish pork products--whose currency is tied to the euro--more expensive relative to North American products.

With respect to 2006, negotiations to re-open Japanese markets to North American beef are currently ongoing. Re-introduction of U.S. and Canadian beef into Japan is likely to change Japanese demand for pork products. The USDA’s Foreign Agricultural Service expects Japan’s pork imports to decline slightly next year.

Canada and Mexico: Big Customers and Strong Competitors

Canada’s imports of pork products from all sources have increased significantly in 2005, largely to compensate for its brisk rate of export growth. According to the World Trade Atlas, in the first 10 months of 2005, Canada has imported 157 million pounds of pork products, or 44 percent more than in the same period last year. The majority of Canadian imports--92 percent so far in 2005--originate from the United States. USDA expects Canadian imports to increase almost 15 percent next year.
Canadian pork exports so far in 2005 are 14 percent above a year earlier. Major Canadian customers are largely the same as for the United States, suggesting the highly competitive nature of world pork markets. A small number of large exporters compete for market share in a relatively small set of importing countries. USDA expects Canadian exports to increase about 2 percent next year.

So far in 2005, Mexico remains the second-largest importer of U.S. pork products, although this year, the rate of increase of Mexico’s demand has moderated. Last year, Mexico’s monthly demand for U.S. pork products averaged 71 percent above 2003. Through October of this year, Mexico’s pork imports from the United States are slightly lower than over the same period last year.

Much of Mexico’s animal protein imports serve as inputs in sausage manufacturing. Because of the ease of substitutability between pork and poultry in sausage production, it is possible that the increase in Mexican demand for U.S. poultry products accounts in part for moderating demand for U.S. pork. Mexican imports of all poultry products in 2005 have increased 23 percent. Imports of chicken cuts have increased 46 percent, while turkey imports have increased 65 percent above the same period last year. Next year, Mexican pork imports are expected to increase about 12 percent.

Smaller Markets An Important Source of Growth

Three new, smaller markets--Australia, Romania, and China--plus Russia, have together pushed the pace of U.S. export growth this year. Australia, Romania, China, and Russia together account for 14 percent of U.S. exports this year. This block of countries together accounts for the third-largest share of U.S. exports, after Mexico and Japan.

Russia’s recent ban on pork and beef products from eight additional states in Brazil due to FMD occurrences is likely supportive to North American pork. If the bans remain in place for a significant period, it will be necessary for Russia to identify other sources of red meat, with Europe, the United States, and Canada being the most likely suppliers.

Year-Over-Year Export Increases Expected in 2005 and 2006

For 2005, U.S. exports are expected to total almost 2.7 billion pounds, or 23 percent more than in 2004. Next year, the rate of export growth is expected to moderate somewhat, as the United States will likely face a foreign demand structure that is mostly similar to the one reflected in international markets in late 2005. Reopening of Asian markets to North American beef could pressure exports lower. In 2006, exports are expected to total about 2.8 billion pounds, an increase of 3.8 percent, and implying that more than 13 percent of U.S. commercial pork production will be consumed abroad, compared with 1996 when 6 percent of U.S. pork production was exported.

Lower Hog/Pig Imports Are Likely Supporting U.S. Hog Prices Also

Lower year-over-year imports of live swine from Canada are another likely factor supporting U.S. hog prices. U.S. import data show that 2005 imports through October were almost 5 percent lower than a year ago. The data further show that feeder pig imports are proportionally lower than last year; that is, in the first 10 months of 2004, feeder pigs comprised 67 percent of total swine imports. This year, feeder pigs account for 66 percent of imports and slaughter hogs for 33 percent. Sows (for slaughter) and breeding animals make up the balance.

Data collected weekly by the USDA/Animal and Plant Health Inspection Service (APHIS) in Canada Live Hog Imports into the United States by State of Entry (http://www.ams.usda.gov/mnreports/WA_LS635.TXT) may help to identify changes in import composition by likely Canadian province of origin. The data through November show that, consistent with previous years, most Canadian hogs and pigs enter the United States via Michigan and North Dakota. Michigan is the State closest to the major swine producing province of Ontario, and North Dakota is adjacent to Manitoba. Data contained in Hog Statistics issued by Statistics Canada (http://www.statcan.ca/ bsolc/english/ bsolc?catno=23-010-X&CHROPG=1) indicate that last year Ontario and Manitoba accounted for 37 percent and 59 percent of Canadian swine exports, respectively.

A summary of USDA/APHIS data for slaughter hogs and feeder pigs entering the United States through the States of Michigan and North Dakota are set out below. Assuming that most hogs and pigs entering through Michigan originate in Ontario, the data suggest that Ontario is the source of most of the reduction in U.S. imports this year. Numbers of Canadian slaughter hogs entering the United States through Michigan was more than 17-percent lower than last year. Feeder pig imports through Michigan were off by more than 35 percent. Canadian slaughter hogs entering through North Dakota increased more than 5 percent over the same period last year, while feeder pig imports via North Dakota fell slightly by more than 2 percent.

Supply and utilization tables for pigs, published in Hog Statistics suggest that smaller quarterly pig crops in Ontario and Manitoba in the first three-quarters of 2005 largely explain lower U.S. swine imports. The data indicate that January- September pig crops were 1-percent lower than a year ago in Ontario. Manitoba-- the primary U.S. source for imported feeder pigs--produced 1.7 percent fewer pigs in the first 9 months of 2005. Fewer pigs have also impacted Canadian slaughter.

January-September hog slaughter in Canada was marginally lower than a year ago, due primarily to decreased kills in Quebec. A 4-percent decline in Quebec slaughter is largely due to disease problems (ie, circo virus) and lingering effects of the expansion moratorium. Small slaughter increases in Ontario and Manitoba suggest that Canadian packers are bidding to keep hogs in Canada, and that the U.S. market for live Canadian hogs and pigs functions as a residual market for Canadian producers, particularly on the slaughter hog side.

More Feeder Pigs Are of U.S. Origin This Year

Smaller Canadian pig crops, higher U.S. feeder pig prices, strong North American packer demand for hogs, and relatively low-cost U.S. feed, have shifted the origins of feeder pigs reported in the National Direct Delivered Feeder Pig Report (http://www.ams.usda.gov/ mnreports/NW_LS255.txt). In 2004, Iowa, Oklahoma, Minnesota, Ontario, and Manitoba were the origins of a significant proportion of feeder pigs reported each week. This year, the proportions of feeder pigs originating in from Canada are lower, while North Carolina, Kansas, and Indiana appear filling the gap created by lower Canadian imports.

The Canadian International Trade Tribunal recently determined that Canadian corn producers are being harmed by imported non-processed U.S. corn. Interim duties could be imposed on imported U.S. corn by the Canadian Border Service as early as mid-December. Interim duties on imported U.S. corn would increase the costs of producing slaughter-weight hogs in Canada, thus reducing Canadian hog producers’ incentives to do so.

The United States is expected to import 2.1 million head of swine in the fourth quarter 2005, and about 8.1 million head for the year. Last year, imports were 8.5 million head.

Links

For more information view the full Livestock, Dairy and Poultry Outlook - December 2005 (pdf)

Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - December 2005