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US Pork Outlook Report - May 2006

by 5m Editor
22 May 2006, at 12:00am

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

USDA Economic Research Service

Total Red Meat and Poultry Production and Consumption In 2007 To Rise More Slowly Than in 2006

Total U.S. red meat and poultry production in 2007 is projected to grow at a considerably slower rate than expected for 2006. Increases of about 2 percent are expected for red meat and poultry production next year. Egg production will likely increase by slightly more than 1 percent, while 2007 milk production is expected to grow by slightly less than 1 percent.

Total per capita consumption of red meats and poultry on a retail basis in 2007 is expected to be 225.6 pounds, an increase of less than 1 percent from the 225.2-pound forecast for 2006. Per capita egg consumption expected next year is 260.3 eggs, less than 1 percent above forecast per capita consumption this year of 258.6.

Hogs/Pork

U.S. pork production is expected to increase about 2 percent next year, to 21.7 billion pounds. As in 2006, exports will be a major component of demand for U.S. pork and a critical determinant of the sector’s financial health. Exports are expected to increase 5 percent next year, to 3 billion pounds, largely on favorable values of the U.S. dollar relative to international competitors. Prices of 51-52 percent lean hogs (live equivalent) in 2007 are expected to average between $39 and $42 per cwt. Retail prices next year will likely average in the high 2.60s per pound.

Second-Quarter 2006 Production Forecast Reduced Slightly

The forecast for second quarter 2006 pork production was lowered by 75 million pounds, as April hog slaughter was lower than anticipated. The U.S. pork sector’s second quarter output is expected to be 5.05 billion pounds, about even with the second quarter a year ago. Production for the year is expected to be 2.1 billion pounds, about 3 percent above 2005. Live equivalent prices for 51-52 percent lean animals are expected to average $42-$44 per cwt.

U.S. Pork Production Expected To Increase 2.3 Percent in 2007

The U.S. pork sector is expected to produce about 21.7 billion pounds of pork next year, about 2 percent more than the 2006 forecast production. The most important sources of the anticipated production increase next year include larger imports of Canadian swine--of which a greater proportion will likely be small animals for finishing in the United States--higher litter rates from a largely stable U.S. breeding herd, and higher average dressed weights. Despite moderately higher prices for hog ration inputs that are anticipated next year, the trend of feeding hogs to larger live weights--yielding higher average dressed weights--is expected to continue.

U.S. imports of Canadian swine are expected to increase 5.6 percent next year to 9.4 million head, from forecast 2006 imports of 8.9 million head. The proportion of imports comprised by animals weighing 50 kilograms or less is expected to increase next year beyond levels seen in 2005--66 percent--and to surpass the highest level achieved--68 percent in 2003. Continued appreciation of the Canadian dollar, which tends to make Canadian pork products more expensive in international markets, is likely to persist in limiting prices that Canadian slaughter operations can pay for hogs. Comparatively lower prices offered by Canadian packer\processors creates incentives to export swine to the United States where costs of finishing swine are typically lower, and packer\processor bids are typically higher than in Canada.

Pork exports will continue to be a critical component of total U.S. pork demand in 2007. Exports of 3.0 billion pounds are expected next year, an increase of 5 percent over 2006 forecast exports of 2.89 billion pounds. Exports will likely account for 14 percent of production next year, a huge leap from just 10 years ago, when the export-proportion of production was just over 6 percent.

Factors assumed to positively influence exports next year include favorable exchange values of the U.S. dollar compared with currencies of competitors, together with lower U.S. prices brought about by larger pork supplies, and continued strength in the Japanese, Canadian, and Mexican economies. Factors that could mitigate growth next year include adjustment and acceptance rates of Asian consumers as markets reopen to North American beef products. Market responses to disease outbreaks may add uncertainty and volatility in international pork markets as well.

U.S. pork imports are expected to increase to 1.04 billion pounds next year. With imports of 1.015 billion pounds anticipated in 2006, import levels have evolved into one of the less volatile components of the U.S. pork sector. Because of Canada’s proximity to, and integration with U.S. markets, it is expected to account for more than 80 percent of U.S. imports this year and in 2007. Denmark, which in recent years has largely been supplanted by Canada as the major exporter to the United States, will likely be the source of between 10 and 12 percent of U.S imports, both this year and next.

Prices of 51-52 percent lean, live equivalent hogs are expected to average $39-$42 per cwt next year, down almost 7 percent from expected 2006 average prices of $42-$44 per cwt. Next year is shaping up to be something of a continuation of 2006, in the sense that the U.S. red meat and poultry sector will supply increased quantities of beef, pork, lamb, chicken, and turkey to domestic and international consumers. Here at home, U.S. consumers will have an abundance of animal protein choices, and will thus more than likely pay lower retail pork prices-- somewhere in the high $2.60s are expected.

March Exports Were Highest Monthly Total Ever

U.S. exporters shipped more than 285 million pounds of pork products to foreign markets in March, a record for monthly exports. March shipments were almost 23 percent above March 2005. First-quarter exports, at almost 770 million pounds, were more than 22 percent above the same period a year ago. The same set of factors that has largely driven trade since 2005 continue to account for the very large U.S. export flows seen in the first quarter of 2006: attractive pork prices from higher domestic supplies, the lower valued U.S. dollar relative to currencies of competitors, and the effects of animal diseases including importers’ access restrictions (i.e., Russia restricting beef and pork imports from Brazil, the restrictions of Japan and Korea on U.S. beef) and consumers’ anxieties connected with poultry consumption and A.I.

Export Growth is Broad-Based

Record-large first-quarter export numbers are not attributable increases by one or two large importing countries. Comparing year-over-year export shares, and import quantities of important foreign markets, show that while there have been some significant changes in export shares, U.S. export growth is attributable to broad increases across almost all important foreign markets. U.S. pork exports are increasing because--with the exception of Japan--all foreign customers are buying more U.S. pork.


While Japan, Mexico, and Canada still account for more than half of U.S. pork exports, last year at this time, these three countries accounted for almost 73 percent. These countries together are importing more U.S. pork than a year ago, but the U.S. export “pie” is growing, to the extent that Japan, Mexico, and Canada are accounting for a smaller piece of the pie. Indeed, Japan’s first-quarter imports of U.S. pork are off by almost 8 percent--largely due to a very large overhang of stocks. Canada has been supplanted by South Korea as the third-largest importer, although Canada’s imports of U.S. pork increased more than 9 percent over firstquarter 2005.

While the significant increases in Russia’s demand for U.S. pork are a likely outcome of Russian restrictions on imports of Brazilian pork due to Footand- Mouth disease outbreaks, favorable U.S. prices and exchange rates, in particular, are the most likely factors underlying the broad-based increases seen in the first quarter. The figure below shows that first-quarter 2006 U.S. wholesale pork prices were more than 16 percent lower than a year ago.

The next figure shows the Federal Reserve Bank’s broad-based trade-weighted index of the value of the U.S. dollar. Although the dollar’s value in the first quarter was slightly higher than a year ago, the currency’s value has depreciated significantly from the 3-year (2002-2004) average. Lower pork prices and favorable relative exchange rates will likely remain the fuel for U.S. pork export flows.

First-Quarter Imports of Live Swine Also Larger

U.S. swine finishers and packer\processors imported 2.1 million head of swine in the first quarter, almost 13 percent more than in the first quarter of 2005. This year, 70 percent of first-quarter imports were comprised by animals weighing 50 kilograms or less; last year, the share of smaller animals--to be finished and slaughtered in the United States--was 66 percent. Both the 17-percent increase in the number of smaller animals and the 2-percent increase in slaughter hogs imported, point up the presently uncompetitive environment for finishing and slaughtering hogs in Canada.

The appreciated value of the Canadian dollar reduces the competitiveness of Canadian pork products in international markets-- particularly against U.S. pork. Because the Canadian pork sector typically exports at least half of its production, lackluster exports--through March, Canadian pork exports increased less than 2 percent year-over-year--constrain Canadian packers’ ability to bid against U.S. slaughter facilities for hogs, creating incentives for exporting live animals to the United States.

The United States is expected to import 8.9 million head of swine this year--an increase of almost 9 percent over 2005--and 9.4 million head in 2007. The USDA forecast assumes that the small declines in Canadian pig crops seen in 3 of the last 5 quarters will be reflected in lower Canadian slaughters, rather than in lower exports to the United States. Indeed, through May 7 Agriculture and Agri-Food Canada statistics (http://www.agr.gc.ca/redmeat/mimain.htm) indicate that 2006 Canadian slaughter is down 4 percent from a year ago, while USDA\APHIS statistics, through the first week of May, show that live swine exports to the United States are up almost 11 percent over the same period in 2005.

Links

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

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