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Pork Commentary: Pork Exports – Saving Our Bacon

by 5m Editor
21 March 2007, at 4:06pm

CANADA - This weeks Pork Commentary from Jim Long.

Sometimes events and circumstances overwhelm the marketplace. This past week, US marketings were 2.133 million – over 5% greater than the same week a year ago. That’s a lot of hogs and when coupled with the 2.128 million of the week before, an astounding amount of pork being pushed into the marketplace. The miracle of miracles is the hog market did not collapse under the weight of such tonnage. Packer capacity, such as it is, was able to handle this tremendous onslaught of hogs and US pork lean cut-outs’ values last Thursday were 65.97, remaining defiantly strong. The Iowa-Minnesota lean hog price closed last Friday at 59.02, only slightly down from the previous week’s 59.81. Unfortunately, with feed prices as high as they are, many producers could be losing $10.00 per head.

Lean hog futures took a beating during the week also, with April, May and June losing $3-4 per hundred weight. Closing last Friday – April 64.40, May 74.35 and June 74.56. Still good prices, but dropping $6.00 to $8.00 per head on the week.

A big part of the problem in the marketplace is the repercussion of the winter storms two weeks ago when the US weekly marketings were held to only 1.896 million. Consequently, the industry has been playing catch-up. We expect marketings will fall more in line this coming week, but with high feed prices there seems to be ongoing efforts by producers to lower slaughter weights in an attempt to lower feed costs.

The real positive is two weeks over 2.125 million head and the market held together. Not too long ago anything over 2 million head a week was a recipe for significantly lower prices.

Exports – Saving Our Bacon

One of the major factors saving our bacon with these huge weekly marketing is the tremendous ongoing increases being seen in US Pork exports. In January, US pork exports were up 20.8% over January of a year ago. Currently, one out of six US slaughtered hog’s pork equivalency is exported or about 15% of pork marketed.

If we assume domestic demand is met before much pork is exported, the numbers of increasing pork exports would be much lower without the added value opportunity of Canadian pig and hog imports. The approximate 8 million head from Canada yearly is roughly equal to one half of US pork exports. Without the pigs from Canada, there would be fewer pigs for finishing in what obviously is an infrastructure that exists to raise them. Packers would also have higher costs, as they would have underutilized facilities.

We believe one of the greatest strengths of the US pork industry is a packing industry built on scale, efficiency, well capitalized, modernized and competitive. Low operating costs are pulling more and more Canadian pigs to the US, as lower costs and probably better value enhancement is tilting to the US industry’s advantage. Exports are driven by price, quality, terms and ability to deliver. American pork salesmen are winning in the world marketplace. In January, US exports year over year to Japan were up 43%, Russia 44%, Hong Kong 35% and China an astounding 72%.

Pork exports have some downside for our industry. A while ago, we heard one pork packer executive compare pork exports to drug addiction. We are becoming dependents. If there was a health issue (come on down BSE – Foot and Mouth) heavy export reliance could crash the market, but being optimistic we do not think the odds are high that it will happen. Unfortunately, it is still a possibility.

Summary

The markets are languishing, but we expect rapid price increases as weekly marketings move below 1.9 million in May. Huge export increases are keeping pork moving and we are not building up cold storage reserves beyond seasonal adjustments. As we approach summer, beef tonnage will decline as fewer cattle on feed and lighter carcasses will drop red meat availability. The only way to ration lower supply is higher prices. Lean hog prices will reach beyond 80¢ this summer.

5m Editor