USA October pork exports were $407 million in October; the third highest month in 2010. Year to date (January to October) 1.39 million metric tons have been exported for a total value of $3.49 billion. The 1.39 million metric tons is estimated to be 23.5 per cent of total US hog production. Mexico, Japan, and Canada are the leading export markets taking about 75 per cent of US exports.

It would be interesting to see a calculation how the $511.8 million of pork in the first ten months exported to Canada relates to the value of pigs sent from Canada. Our cowboy math stab at it the $511.8 pork exports in ten months is $51 million per month. Canada’s small pigs’ exports to the USA are hovering around 400,000 head per month. Small pig value average of $60/head = $24 million/month. Trade works both ways!

The strong US pork exports seen in 2010 are expected to continue in 2011 with FAS estimating new record tonnage of 2.221 metric tons eclipsing the previous record of 2.117 in 2008.

FAS estimates the US will remain the world’s largest pork exporter with a forecast market share of 35 per cent in 2011. With Canada estimated to export about 20 per cent of the world pork exports. It is not hard to calculate the global dominance of the US – Canada pork industry with 55 per cent of the world’s pork exports. The two other major global export players are EU -27 with 25 per cent and Brazil at 10 per cent.

Bottom line: Strong export demand will push hog prices in 2011. The Achilles heel to big dependence on exports is the danger of a major swine health break that can hinder market access.

Other Observations

• The US corn ethanol industry got an early Christmas present by getting their 45 cent subsidy and tariffs renewed for one more year when it got tied to US tax bill. For livestock producers the continuation of the insanity of corn ethanol subsidization was if the Grinch had stole Christmas. Corn around $6.00 a bushel is driving swine cost of production higher. If what’s good for the goose is good for the gander maybe congress should subsidize livestock producers. Why is corn ethanol any more important than meat protein production? When the price of food inevitably goes higher from the pressure of higher feed prices. It will be interesting to see how the politicians that continue to vote for corn ethanol explain high food prices to the electorate.
  
  
• Cattle prices are real strong. Live fed steers are $1.00 a pound, a year ago they were $79.20. This price surge despite marketing numbers up are a reflection of excellent domestic and export demand. Beef prices 26 per cent higher than a year ago. Last Friday’s live cattle futures for 2011 ranged from $104.50 - $109.90 per pound. It looks like real high cattle prices in 2011 will be their support hog prices.
  
  
• After several weeks of chick placements around 7 per cent year over year. The chicken broiler industry has pulled placements down to 1 – 2 per cent year over year. The 5 per cent difference is between 40 – 50 million pounds of chicken a week. The high feed prices have shocked the chicken industry from their own game of chicken suicide. Less chicken will support hog prices.
  
  
• US cash small pig prices continue to move higher up $2.00 to $4.00 per head last week. Early weans averaged $52.23 (41 – 62.00) 40 pound feeder pigs $64.38 (48 0 71.00). The strong price move is exceptional in the face of high feed prices. In our opinion the lack of small pigs and lean hog futures of near 90 cent lean a pound are overcoming the fear and reality of $6.00 bushel corn.
  
  
• In last week’s commentary we wrote about the British report that estimates that unless European hog market margins improve up to 60 million hogs a year of production could disappear in the next three years. This past week we had visitors from Spain. Spain has 2.8 million sows. The spoke about the crisis their hog industry was in. High feed prices, low hog prices, many legislated mandates including banning of gestation crates in 2012. The point is the challenges we have in North America are not unique. All producers are under constant pressure to increase productivity and get value for expenses. This constant pressure is difficult for all involved affecting our family life on top of the financial pressures.

Summary

US pork exports are strong, and will continue strong. We expect US – Canada hog production will be lower in 2011 than 2010. The combination of strong exports, steady domestic demand, and fewer hogs are good reasons to believe lean hog prices in the high 80’s are a good bet indeed. We see scenarios that could push hogs north of 90 cents in the summer. Prices can’t be too high to fill the equity hole.