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US Pork Outlook Report - November 2008

by 5m Editor
18 November 2008, at 12:00am

By USDA, Economic Research Service - This article is an extract from the November 2008 <em>Livestock, Dairy and Poultry Outlook Report</em> by Richard Stillman.

USDA lowered its fourth-quarter estimate of commercial pork production by 80 million pounds due to lower-than-expected hog slaughter in October. Production is expected to be nearly 6.21 billion pounds, less than 1 percent above fourth quarter last year. Fourth-quarter prices for live equivalent 51-52 percent lean hogs are expected to average $41-$43 per cwt, or about 6 percent above last year.

Production Estimate for Fourth-Quarter 2008 and 2009 Lowered Slightly

USDA lowered its fourth-quarter estimate of commercial pork production by 80 million pounds due to lower-than-expected hog slaughter in October. Production is expected to be nearly 6.21 billion pounds, less than 1 percent above fourth quarter last year. Fourth-quarter prices for live equivalent 51-52 percent lean hogs are expected to average $41-$43 per cwt, or about 6 percent above last year.

Commercial pork production in 2009 is also likely to be slightly lower than previously estimated, due to lower expected imports of live swine from Canada. USDA lowered its forecast of 2009 pork production to 23.1 million pounds—1.6 percent below 2008—on the expectation that U.S. imports of live swine from Canada next year will be almost 21 percent below live imports in 2008. Lower live swine imports next year are the likely outcome of lower Canadian hog inventories and COOL-driven decisions of some U.S. packers to source only U.S.-origin hogs.

Statistics Canada recently reported that October 1, 2008 total hog inventories were 10.9 percent lower than a year earlier, with breeding inventories off by 8.3 percent, year-over-year. Contraction of breeding numbers in Canada began in mid-2005 in response to poor producer returns, which resulted primarily from an appreciated Canadian dollar. The high-valued Canadian dollar sharply decreased the competitiveness of Canadian pork in international markets and producer returns from live swine exports to the United States. Producer intentions reported by Statistics Canada for the October-December 2008 period—8 percent below the same period a year ago—suggest that contraction of the Canadian hog inventory will continue into 2009.

While supply factors in Canada account for part of the reduction in the 2009 live swine import forecast, lower demand on the U.S. side of the border will also likely play a significant role next year in lowering live swine imports. With the implementation of the U.S. COOL law on October 1, several major U.S. packers have expressed the intention to begin sourcing only U.S.-origin hogs, starting in early 2009. Packer refusal to accept Canadian-origin swine reduces expected demand by U.S. swine finishers for Canadian-born early-weaned pigs and feeder pigs, as well as for Canadian slaughter hogs. Next year, U.S. packers and swine finishers are expected to import 7.2 million head of hogs, down from nearly 9.1 million head in 2008.

September imports of live swine totaled almost 744,000 head, 7.2 percent lower than September of last year. Third-quarter imports were slightly more than 2.2 million head, 10.7 percent lower than the same period last year.

September Exports 41 Percent Above a Year Ago; Third Quarter Exceeds Last Year by 60 Percent

U.S. pork exports in September were 340 million pounds, 41 percent above September 2007. The largest destination markets for U.S. pork products in September are listed in the table below. The top six countries together accounted for 84 percent of exports in September: Japan (32 percent), Mexico (15 percent), Canada (12 percent), Russia (12 percent), Hong Kong (12 percent), and South Korea (6 percent). China’s September imports of U.S. pork products were 4 million pounds, almost 80 percent below September 2007. September export volumes suggest while that aggregate foreign demand for U.S. pork products remains robust, rates of year-over-year increases have slowed from the torrid pace of the second quarter. The absence of strong September demand from China is conspicuous, and likely reflects the conclusion of the Olympic games and some progress in bringing domestic pork prices down.

Third-quarter pork exports were more than 1.1 billion pounds, about 60 percent ahead of the same period last year. The ten largest foreign markets for U.S pork in the third quarter are listed below.

U.S. pork exports to major foreign destinations: Sept. 2008, 2007 and third quarter 2007, 2008
Rank
3rd qtr.
2008
Country 3rd qtr.
2008
3rd qtr.
2007
% change
year over
year
Sept. 2008 Sept. 2007 % change
year over
year
million lbs. million lbs.
World 1,126 703 60 340 241 41
1 Japan 341 247 38 109 79 37
2 Mexico 177 99 80 51 30 71
3 Russia 129 52 149 40 20 98
4 Canada 113 96 17 40 36 10
5 Hong Kong 111 37 200 26 15 73
6 South Korea 62 36 71 19 11 65
7 China 29 55 -47 4 22 -80
8 Taiwan 18 5 249 4 1 190
9 Australia 18 14 26 5 5 -3
10 Philippines 16 4 294 4 1 188
Source: Economic Research Service, USDA. http://www.ers.usda.gov/data/meattrade/

Export Forecast for 2009 Lowered

U.S. exports of pork products in 2009 are expected to be 4.5 billion pounds, 11.2 percent below 2008, but 43.3 percent ahead of exports in 2007. Assumptions underlying lower year-over-year exports next year include a weaker global macroeconomy and a higher-valued US dollar, both of which could impact demand for U.S. pork in major foreign markets such as Japan, Mexico, Canada, and Russia. Total Chinese imports next year are expected to be weaker compared with 2008.

U.S. Pork Imports Likely Higher Next Year

U.S. pork imports in 2009 are likely to be somewhat higher than this year. The forecast is revised upwards to 850 million pounds, an increase of 2 percent over expected imports this year. The year-over-year increase is largely based on lower domestic production, lower U.S. live swine imports, and a higher exchange-rate value of the U.S. currency relative to the Canadian dollar.

September pork imports were almost 60.5 million pounds, more than 21 percent below a year ago, with Canada accounting for all but a small proportion of the decline. For the third quarter, the United States imported 191.4 million pounds of pork products, more than 20 percent lower than the same period last year. Thirdquarter imports from Canada were off by 22.5 percent, and were about 8.5 percent lower from Denmark.

Retail Prices Record High in Third Quarter

For the first time, the retail price of a pound of pork exceeded $3.00 in the third quarter. The retail pork price, at $3.002 per pound, was largely a consequence of relatively high third-quarter hog prices, which, in turn, came about because of onfire summer export demand for U.S. pork and lower pork production. The thirdquarter farm-to-retail pork price spread this year was smaller than third quarter a year ago—$2.017 vs. $2.052 last year. Only the farm-to-wholesale portion of the total spread was larger this year ($0.424) than in the third quarter last year ($0.379), likely reflecting higher hog prices last summer. Although retail prices were higher year-over-year than third quarter last year, packers and retailers took away a smaller portion of the total farm-to-retail price spread: $1.593 this year, compared with $1.673 in the third quarter last year. Fourth-quarter retail pork prices are expected to drop back seasonally into the mid-$2.90s per pound and to average in the mid-tohigh $2.90s per pound in 2009. Next year, anticipated weakness in the U.S. economy is likely to stiffen consumer resistance to higher retail pork prices.

Further Reading

- You can view the full report by clicking here.

November 2008