CME: US Pork Supplies Likely to Contract in Q2
US - CME's Daily Livestock Report for 19 March 2009.It is broadly expected that US pork supplies will contract
significantly in the second quarter. We should get a better
idea of how large the decline will be from the USDA quarterly
inventory numbers, expected to be released on Friday, 27 March.
Based on the December inventory data, implied Q2 hog slaughter is
expected to be down as much as 5 per cent, a decline that is in part due to
fewer Canadian hogs and feeder pigs entering the US market.
High
feed costs in the last few years, a sharp appreciation of the currency
(at least until last fall) and COOL legislation, all have negatively
impacted hog producers in Canada, leading to a significant net reduction
in the breeding herd as well as the number of hogs and pigs
entering the US market. For the period 4 January-7 March 2009, US hog
producers imported approximately 898,000 Canadian feeder
pigs, almost half a million feeders less (-35 per cent) than the same
period a year ago.
Imports of slaughter hogs are down even more
as US packers have imported around 112,000 head so far this year,
down some 460,000 head or 80 per cent compared to year ago levels. In
total, imports of Canadian slaughter hogs and feeder pigs during the
first nine weeks of the year is down by almost 1 million head, or 48 per cent
lower than the same period a year ago. Due to the decline in such
imports, we calculate that for the week ending 7 March, Canadian
born hogs made up just 5.7 per cent of US total hog slaughter, compared to
8.5 per cent a year ago and 7.3 per cent average of the past five years.
We calculated
this number based on entries of slaughter hogs from the previous
week as well as a lagged imports of feeder pigs (allowing for the
time they spend on feed before coming to market). While the reduction
in feeder pigs numbers will likely be captured in the USDA inventory
survey, the decline in slaughter hog imports will not. It is a
factor that needs to be accounted for when looking at out front projections
of hog slaughter based on the USDA survey data.
A much smaller breeding herd in Canada will limit the overall
supply of feeder pigs coming into the US during much of 2009.
Given the changes made to the COOL final rule, which just came
into effect this week, the burden on US packers and producers is less
significant than when it was initially put in place and should ease
some the pressure on Canadian imports. However, there is lingering
uncertainty as to what USDA may do next in terms of further revising
COOL rules, especially if packers do not abide by the request
from the USDA Secretary to “voluntarily“ impose more explicit labels
for meat products.