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US Pork Outlook Report - May 2007

by 5m Editor
28 May 2007, at 12:00am

By U.S.D.A., Economic Research Service - This article is an extract from the May 2007: Livestock, Dairy and Poultry Outlook Report, highlighting Global Pork Industry data.

First-Quarter Pork Production Shows Year-Over-Year Increase

First-quarter 2007 commercial pork production of almost 5.4 billion pounds amounted to a 1.1 percent increase over the same period last year. Commercial hog slaughter for the quarter of 26.7 million head exceeded the first quarter 2006 slaughter by a larger percent—1.8 percent—pointing up the reality of lower slaughter weights that result from higher costs of gain. First-quarter 2007 commercial average dressed weights averaged 202, 2 pounds lower than firstquarter 2006. Higher costs of feeding hogs to slaughter weight derive from significantly higher prices for corn and higher soybean meal. The first-quarter 2007 farm price of corn—$3.31 per bushel—was more than 63 percent above the same period last year. The first-quarter Decatur price of 48 percent soybean meal—$201 per ton—was more than 12 percent above first quarter 2006.

Second-Quarter Pork Production Forecast Lowered

Lower-than-expected hog slaughter in April prompted a reduction in the USDA forecast for second-quarter pork production. Second-quarter 2007 pork production is expected to be 5.125 billion pounds, more than 2 percent above the same period last year. Both live and average dressed weights will likely continue to be lower than last year.

2007 commercial pork production is expected to be 21.4 billion pounds, almost 2 percent above production last year.

Higher Hog Prices Despite Higher Pork Supplies

Prices for 51-52 percent live equivalent hogs averaged $46.04 per cwt in the first quarter of 2007, 8 percent above the same period last year. April prices averaged $48.43 per cwt, almost 17 percent above April 2006. Year-over-year higher hog prices, when average daily hog slaughter were also year-over-year larger, reflect aggressive packer bidding for animals. The strong wholesale pork values received by packers so far this year have enabled them to bid live hog prices higher, while maintaining generally positive margins. Higher wholesale pork values, occurring when pork supplies are year-over-year higher, are an indicator of robust total pork demand. Total pork demand includes demands from hotels, restaurants, institutions, and exporters, in addition to retail demand. First-quarter wholesale pork prices, as estimated by the USDA Pork Carcass Cutout, were $66.56 per cwt, almost 8 percent higher than the same period last year. April’s cutout was $69.24 per cwt, more than 14 percent above April 2006. Strong pork demand this year is largely attributable to a strong U.S. economy, higher prices of substitute meats—beef and poultry, and continued strong foreign demand for U.S. pork products.

Prices for 51-52 percent live equivalent hogs for 2007 are expected to range between $49 and $51 per cwt.

Retail Prices Running Slightly Ahead of Last Year

First-quarter retail pork prices were $2.81 per pound, or almost 1.4 percent higher than first-quarter 2006. Prices in April were $2.81 per pound. The total price spread between farmgate and retail narrowed slightly in the first quarter: from $2.02 in 2006 to $2.00 this year. The narrowing price spread is a likely reflection of strong first-quarter hog prices. For the balance of 2007, retail pork prices are expected to average in the low $2.80s per pound.

Growth Rates Expected To Be Positive, but Slower, For U.S. Pork in 2008

Key variables for U.S. pork production and utilization are expected to register relatively small changes in 2008. Increases are expected in pork production (0.8 percent) and pork exports (5.1 percent) while pork per capita disappearance is expected to decline by 0.4 pounds. As in 2007, values of other variables determined largely outside the U.S. pork sector—corn and soybean prices, GDP growth of the U.S. economy, and the foreign exchange value of the U.S. dollar—are particularly important in 2008 pork production and utilization forecasts.

The 2007/08 farm price of U.S. corn is expected to range between $3.10 and $3.70 per bushel, compared with the 2006/07 farm price forecast range of $3.00 to $3.20 per bushel. The 2007/08 price of 48-percent-protein soybean meal is expected to range between $185 and $215 per ton, compared with the 2006/07 forecast price of $195 per ton. Price forecasts for the major components of hog feed in 2008 thus point to smaller increases in the cost of gain, compared with the significant yearover- year increases that the hog production industry recently sustained, beginning in the fall of 2006.

Commercial pork production in 2008 is expected to be 21.63 billion pounds, an increase of slightly less than 1 percent compared with 2007. The production increase next year is assumed to result from larger imports of slaughter hogs and finishing animals from Canada, continued modest increases in farrowings, small increases in litter rates, and small year-over year increases in average dressed weights, reflecting largely stable feed costs.

2008 Hog Prices To Range Between $47 and $51 Per Cwt

Prices for live equivalent 51-52 percent hogs next year are expected to range between $47 and $51 per cwt. Expectations for hog prices in 2008 are based on the strong likelihood of a stable-to-lower North American breeding inventory, whose growth will be constrained primarily by upside feed cost risk. Small increases in hog\pork supplies next year are expected to be largely balanced by solid domestic pork demand and moderate growth in pork exports.

Retail Pork Prices Next Year About the Same as in 2007

Retail per capita pork disappearance is expected to be slightly lower next year, at 49 pounds per person. Retail pork markets are likely to equilibrate at prices in the low $2.80s per pound, much the same as those seen so far this year. Domestic pork demand next year will be supported by moderate U.S. GDP growth, as well as by lower per capita beef disappearance and relatively high retail beef prices, in the mid-$3.90s per pound.

Pork Export Growth Slows in the First Quarter

U.S. exporters shipped 792 million pounds of U.S. pork in the first quarter of 2007, for an increase of 2.9 percent over the same period last year. Although first-quarter exports to Japan increased almost 19 percent, and thus appear to be continuing the recovery in year-over-year exports that began in the fourth quarter of 2006, shipments to Canada increased only about 2 percent in the first quarter, and exports to Mexico were off by more than 20 percent. Moreover, destination markets that were a source of significant growth in 2006 slowed dramatically in first-quarter 2007. Russia began 2007 with a year-over-year increase of more than 40 percent in January, but ended the first quarter 6-percent lower than the first quarter of 2006. March exports to South Korea declined 11 percent, but first quarter, taken as a whole, showed an increase of more than 9 percent compared with last year.

At present, there does not appear to be a “one-size-fits-all” explanation, applicable to Mexico, Russia, and South Korea, for the first quarter slowdown in pork exports. Each export destination appears to have its own unique set of circumstances and market fundamentals that may partially explain departures from established trends going into 2007. Mexico’s decline in demand for U.S. pork may be a consequence of higher corn prices that caused larger-than-expected domestic slaughter. Greater supplies of domestic pork may have supplanted the need for U.S. pork early in 2007. However, exports of all meats to Mexico were down significantly in the first quarter, suggesting a more general weakening of consumer demand may also be occurring.

Although Russian imports of U.S. pork were year-over-year higher in January, Russia imported year-over-year lower quantities of U.S. pork in both February and March. First-quarter exports, in total, were more than 6 percent lower compared with first-quarter 2006. Trade statistics from the World Trade Atlas indicate that Brazil’s first-quarter exports to Russia increased almost 19 percent compared with the same period last year. It is possible that Russian importers substituted Brazilian pork products in place of U.S pork in the first quarter.

South Korea was another country in which large year-over-year exports in January compensated for slower exports from the U.S. in February, and for year-over-year lower exports in March. For the quarter, exports to South Korea were more than 9 percent above first-quarter 2006. The South Korean currency depreciated slightly against the U.S. dollar in the first quarter compared with the fourth quarter of 2006, and this could account for some reduction in import demand. It is also possible that Korean pork imports are slowing in anticipation of larger Korean beef imports in 2007.

Moderate Export Growth Expected in 2007 and 2008

U.S. pork export growth is expected to moderate for the balance of this year and through 2008. Whereas U.S. pork exports grew at double-digit rates in recent years, as foreign meat buyers responded to animal-disease-related market closures, 2007 and 2008 will likely be years of continued normalization and readjustment, as trade gradually reestablishes the dynamics that existed before the onset of several BSE incidents in North America, foot and mouth disease outbreaks in Brazil, and Avian Influenza outbreaks in Asia. U.S. exporters are expected to ship 3.1 billion pounds of pork in 2007, an increase of almost 4 percent over last year. Next year, U.S. exports are expected to be almost 3.3 billion pounds, an increase of about 5 percent above the 2007 forecast.

U.S. pork imports were 239 million pounds in the first quarter, almost 8 percent below the same period a year ago. Imports from Denmark were more than 25 percent below first-quarter 2006, likely due to the depreciated exchange value of the U.S. dollar. While exchange rate factors likely pushed imports from Canada 5.5 percent lower than a year ago, transportation considerations, as well as strong commercial ties between North American neighbors, were probably factors that limited Canada’s decline.

The United States is expected to import 929 million pounds of pork in 2007, slightly more than 6 percent below 2006. Next year’s imports are forecast to be about the same as in 2007, at 930 million pounds.

Live Swine Import Expected To Climb Again in 2008

U.S. packers and finishers imported 2.3 million head of Canadian swine in the first quarter of 2007, almost 8 percent more than in the first quarter 2006. Larger imports reflect larger supplies of Canadian animals available for export, because ongoing turmoil in the Canadian processing industry continues to create incentives for Canadian producers to ship animals to the United States. In addition, strong first-quarter U.S. demand for live swine was signaled by year-over-year higher firstquarter live hog prices and favorable prices for finishing animals. Through May 11, 2007 weekly prices for early-weaned feeder pigs averaged almost 9 percent compared with the same period in 2006. (http://www.ams.usda.gov/mnreports/NW_LS255.txt).

Further Information

For more information view the full Livestock, Dairy and Poultry Outlook - May 2007 (pdf)

May 2007