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US Pork Outlook Report - June 2006

by 5m Editor
19 June 2006, at 12:00am

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

USDA Economic Research Service

Hogs/Pork

Commercial pork production is expected to be 5.1 billion pounds in the second quarter and 21.3 billion pounds for 2006, increases of 1 percent and 2.8 percent, over year-earlier periods, respectively. Pork exports continue to provide demand support, with April exports almost 2 percent above April 2005, and cumulated (January-April) exports at 1.026 billion pounds, 16 percent above the same period last year.

Prices of live equivalent 51-52 percent lean hogs are expected to average between $46 and $47 per cwt for the second quarter, almost 11 percent below a year ago, while 2006 prices will likely average between $43 and $44, 13 percent below 2005. Retail pork prices are expected to average in the high $2.70s per pound this year, almost 2 percent lower than 2005. Per capita 2006 pork consumption is expected to be 49.9 pounds, slightly lower than last year.

Heavier Average Dressed Weights Expected To Nudge Second-Quarter Pork Production Higher

The U.S. pork sector is expected to produce 5.075 billion pounds of pork in the second quarter, an increase of 25 million pounds above last month’s estimate of quarterly production. The increase is due to higher expected average dressed weights for the quarter--202 pounds--1 pound above a year ago. Estimated production for the second quarter is slightly more than 1 percent above the same period last year. For 2006, production is expected to be 21.3 billion pounds, or almost 3 percent above 2005. The production forecast for 2007--21.7 billion pounds--is unchanged from last month.

Prices for live equivalent 51-52 percent hogs were $41.45 per cwt in April and $49.00 per cwt in May, pointing to an average second-quarter hog price of $46-$47 per cwt. Although second-quarter hog prices are expected to be almost 11 percent below second-quarter 2005, ERS estimated returns for a farrow-to-finish operation in the North Central States currently show break-even costs in the high $30 per cwt, suggesting that most U.S. hog producers continue to operate in the black.

On the pork processor side, the story runs parallel to hog production; that is, while April-May wholesale prices--as indicated by the USDA estimated pork carcass cutout--ran about 12 percent below a year ago, the difference between the April- May 2006 average cutout and the average 51-52 percent hog price for the same period, continues to be positive, and above a year ago, suggesting that packer\processors also have favorable margins.


*Estimated packer\processor margin = Weekly average base lean hog carcass slaughter
cost (51-52% lean) - Weekly USDA estimated pork carcass cutout.

Exports Continue To Buttress Pork Demand

Clearly, a healthy share of demand strength so far this year is due to export demand. In fact, two of the strongest components of the April-May cutout turned out to be cuts for which there are typically strong foreign demand, namely butts and hams. (Bellies are the only other component of the cutout trading at above year-earlier levels so far in the second quarter, and they typically derive much of their strength from domestic demand which is seasonally strong in the summer months.) April export data released on June 9 show an increase of almost 2 percent over April 2005, with cumulative 2006 exports of 1.026 billion pounds running more than 16 percent above the same 4-month period in 2005.

Although Japan’s imports, through April, are almost 10 percent below the same period last year, Japan remains the single largest importer of U.S. pork products. Japan’s 34 percent share of U.S. pork exports, together with export shares of Mexico (21 percent), South Korea (11 percent), and Canada (10 percent), account for 76 percent of January-April 2006 U.S. pork exports.

On the expectation that U.S. pork prices and the exchange rate of the U.S. dollar will remain competitive relative to other pork exporting countries, the 2006 and 2007 forecasts for total U.S. pork exports were each increased; exports in 2006 are expected to be 3.1 billion pounds, more than 15 percent above 2005. Exports next year are expected to be 3.2 billion pounds, more than 5 percent above 2006. Given current production and export forecasts, exports will comprise more than 14 percent of production this year and almost 15 percent in 2007. As a point of reference, in 2000, exports accounted for about 7 percent of total U.S. pork production.

Pork Import Forecasts Increased

April imports were 79.5 million pounds, more than 3 percent above April 2005. For the first 4 months of 2006, imports totaled 339 million pounds, 5.4 percent above the same period last year. Due to larger-than-expected January-March imports, the import forecast for 2006 was raised to 1.089 billion pounds, from 1.015 billion pounds. The import forecast for 2007 was raised 70 million pounds, to 1.11 billion pounds. Since 1990, the U.S. pork imports have ranged from 4 percent to 6 percent of U.S. pork disappearance. The new import forecasts for 2006 and 2007 imply that the United States will import about 5.6 percent of pork disappearance in both years. By comparison, Japan imported more than 51 percent of its pork disappearance last year.

Second-Quarter 2006 Retail Pork Prices Expected To Be Lower

Second-quarter retail pork prices are expected to average in the high $2.70s per pound, almost 3 percent below the same period last year. For 2006, retail pork prices are expected to also average in the high $2.70s per pound, slightly lower than last year, in part, because of plentiful supplies of pork and competing meats. Lower retail pork prices could also reflect the greater degree of grocery shopping selectivity that some consumers display, when higher costs of energy and borrowing claim a larger portion of disposable incomes.

Farm-to-Retail Spread Likely To Be Wider Than Last Year

Although prices for both retail pork and hogs are expected to be lower both this year and in 2007, the difference--the “spread”--between hog prices and retail pork prices will likely increase. This means that 2006 and 2007 gross returns to “middlemen” (packer\processors, wholesalers, etc.) will probably be higher than in 2005. It is also likely that larger spreads are a partial reflection of the higher costs--energy, borrowing, health care, etc.--of doing business.

Further Information

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

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