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US Pork Outlook Report - July 2006

by 5m Editor
27 July 2006, at 12:00am

By U.S.D.A., Economic Research Service - This article is an extract from the July 2006: Livestock, Dairy and Poultry Outlook Report, highlighting Global Pork Industry data.

USDA Economic Research Service

Hogs/Pork

The Quarterly Hogs and Pigs report released by the U.S. Department of Agriculture on June 30, 2006, showed swine inventories to be largely unchanged from a year ago. Projected second-quarter pork production is 0.4 percent below the second quarter last year. The large year-overyear increase in May was not sufficient to compensate for lower production in April and June.

The second quarter price of 51-52 percent lean live equivalent hogs was $48.45 per hundredweight (cwt), 7 percent below a year ago, but June’s price, at $54.90 per cwt, was 10 percent above June 2005, due largely to a lower-thanexpected June slaughter. A range of $47 and $49 per cwt is expected for thirdquarter 51-52 percent lean live equivalent hogs, about 5 percent below a year ago. May pork exports, at 270 million pounds, were 11 percent above May 2005. So far in 2006, U.S. pork exports are running at more than 15 percent above the same period last year.

Quarterly Hogs and Pigs Indicates Modest Increases Across the Board

The Quarterly Hogs and Pigs report released by USDA on June 30 showed swine inventories to be largely unchanged from a year ago. The June 1 inventory of all hogs and pigs was just slightly larger--195,000 head--than June 1, 2005. The market hogs and pigs by weight groups were slightly more interesting, in that the 180-pound-and-over category came in at 2 percent below last year. Thus, the Hogs and Pigs inventory partially explains the June slaughter, which turned out to be lower than expected. On June 1, 2006, the under-60-pound weight group was 1 percent larger than June 1 of last year, and largely in line with USDA expectations for fourth-quarter pork production.

The small increase in the June 1 inventory of breeding animals--at 1 percent above June 1, 2005--represented the fifth increase in as many quarters. The modest increases that the industry has seen in the last year--despite more than 2 years of above-breakeven hog prices--reflects the current structure of the U.S. pork industry. High costs of entry and expansion--permitting, construction, regulation, etc.--likely dampens the rate of investment in sow operations, and create incentives to increase hog production through other means. Such “other means” include increased efficiencies of the existing breeding herd, and development of the finishing stage of hog production, via imports of Canadian feeder pigs.

The June report showed that the industry is continuing to extract greater efficiencies from the breeding herd. Pigs per litter for the March-May pig crop were 9.08, 1 percent over the same period in 2005. The figure below shows the dramatic increases in litter rates that have taken place since 1990. The June report indicates that the average U.S. litter produced 1.14 more pigs in the March-May pig crop in 2006, compared with 1990.

The June report also indicated farrowing intentions for the balance of 2006. Second intentions for June-August were just slightly larger than June-August 2005. First intentions for September-November came in at 1 percent over the same period last year. Second-half 2006 farrowing intentions, coupled with higher weights and increased live imports from Canada, point to first-half 2007 pork production of 10.6 billion pounds, almost 3 percent above first-half production this year. Total commercial pork production of 21.8 billion pounds is anticipated in 2007, about 2.8 percent above expected 2006 production of 21.2 billion pounds.

Second-Quarter Pork Production Lower Than A Year Ago

Second-quarter estimated pork production, at 5 billion pounds, came in at slightly below--0.4 percent--second-quarter 2005. The sharp year-over-year increase in May--7.1 percent--reflects the extra slaughter day, and was not enough to compensate for year-over-year lower production in April and June. Lower production in June was at least partially responsible for the spike in June hog prices. The 51-52 percent lean, live equivalent hog price was $54.90 per cwt, 10 percent above June 2005. June was the first month in 2006 in which hog prices exceeded those of a year ago, illustrating the sensitivity of prices to even small, but unanticipated changes in hog supplies.

Economists use the term “price inelastic” to describe the demand for live hogs; meaning that the change in quantity of hogs demanded in response to hog price changes is quite small. Prices of demandinelastic commodities however, tend to be very sensitive to quantity changes, and June was a month where the quantity of hogs supplied by producers was smaller than expected, and hog prices spiked in response. The USDA estimated pork carcass cutout--an indicator of wholesale prices--for the weeks of June 9-June 20 averaged $77.75 per cwt, almost 14 percent above a year ago. It is likely that pork product demand factors also contributed to higher June hog prices.

May Pork Exports Energized by Mexico and Russia

U.S. pork exports in May were almost 270 million pounds, 11 percent above May 2005. In the first 5 months of 2006, the U.S. pork industry has shipped almost 1.3 billion pounds of pork to foreign markets, about 15 percent more than the same period last year. Russia and Mexico appear to have been the countries driving exports in May. Russia’s May imports of U.S. pork were 178 percent greater than a year ago. Mexico took 39 percent more U.S. pork in May than a year ago, thus resuming the torrid pace of year-over-year increases seen in the first 3 months of 2006.

Japan Pork Exports Lower So Far in 2006

Japan is by far the world’s largest importer of fresh and frozen pork products. Japan is also--by far--the largest importer of U.S. pork. Last year, Japan imported over one billion pounds of U.S. pork, accounting for 39 percent of total U.S. pork exports. By comparison, the next largest U.S. customer, Mexico, imported slightly more than half the volume of Japan.

Japan is often termed a “mature pork market,” meaning that large year-over-year increases in pork imports, of the caliber witnessed in the 1980s, are no longer typical. However, since 1990, Japan’s year-over-year pork imports have declined just four times, a likely result of Japan’s import policies. (For information about Japan’s pork import policies, see “Pork Policy in Japan”, by Obara, Dyck, and Stout,
http://www.ers.usda.gov/publications/ldp/mar03/ldpm10501/).

This year, Japan’s pork imports are expected to decline by more than 10 percent, to 1.2 million tons. (http://www.fas.usda.gov/dlp/circular/2006/06-03LP/toc.htm) Through May, Japan’s total imports of fresh, chilled, and frozen pork cuts were down 22 percent (see table). Part of the reason for this year’s decline is likely attributable to the sharp increase in Japan’s pork imports that took place in 2004, the year when Avian Influenza (AI) and Bovine Spongiform Encephalopathy (BSE) were factors in Asian animal protein markets. In 2004 Japan imported about 1.3 million tons of pork, almost 15 percent more than in 2003.

Imports increased 2.8 percent last year as well. Higher pork imports in 2004 and 2005, coupled with resumption of cooked poultry product imports, are reflected in Japan’s pork stocksto- use ratio. For 1999-2003, prior to trade disruptions, Japan’s monthly pork stocks-to-use ratio averaged 0.96. Last year, the ratio averaged 1.52. Through March, Japan’s average stock-to-use ratio has averaged 1.57, although the figure below suggests that lower imports this year may be helping to reduce the stocks-touse ratio.

The table labeled, “Japanese imports of fresh, chilled and frozen pork, Jan.-May 2005 and 2006” shows the year-over-year changes in Japan’s pork imports, together with the distribution between fresh and frozen imports from major exporting countries. The data show clearly that frozen imports have taken the biggest “hit” so far this year. Total Japanese imports of frozen pork are off by 31 percent in the first 5 months of 2006. Japan’s imports of pork from Denmark, whose exports to Japan are limited largely by transport costs to frozen pork, show a reduction of 29 percent.

The trade data show that Japan’s fresh pork imports have largely escaped the lower volumes sustained on the frozen side. This is probably because fresh pork has a limited shelf-life, whose retail\restaurant supplies must be refreshed continually. The data indicate that Japan’s imports of fresh pork products have increased 21 percent in the first 5 months of 2006. Japanese imports of fresh pork from the United States, Canada, and Mexico have each increased, while overall, total imports from the United States and Canada have declined, dragged down by lower frozen shipments.

Increases in Live Canadian Swine Imports Continue in May

U.S. imports of live swine from Canada increased 4 percent in May, compared with May of last year. So far this year U.S. swine finishers and packers have imported almost 3.5 million head of swine, almost 11 percent more than in the same period last year. seventy percent of January-May swine imports were young animals-- ranging from early weaned pigs weighing around 10 pounds, to feeder pigs weighing 55 pounds--to be fed and slaughtered in the United States. Twenty-eight percent were slaughter-ready animals. Last year 68 percent of imports were young animals and 31 percent were slaughter-ready. For 2006, swine imports are forecast at slightly more than 8.8 million head, with second-quarter imports of 2.1 million head anticipated, increasing to 2.3 million head in both the third and fourth quarters.

Further Information

For more information view the full Livestock, Dairy and Poultry Outlook - July 2006 (pdf)

Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - July 2006