ShapeShapeauthorShapechevroncrossShapeShapeShapeGrouphamburgerhomeGroupmagnifyShapeShapeShaperssShape

Pork Outlook Report - March 2004

by 5m Editor
24 March 2004, at 12:00am

By U.S.D.A., Economic Research Service - This article is an extract from the March 2004: Livestock, Dairy and Poultry Outlook Report, highlighting Global Pork Industry data. The report indicates that pork production is edging higher on larger slaughter.

USDA Economic Research Service
Retail Pork Price
Percent change from previous month
Forecasts for first-half 2004 hogs and pork products prices moved higher at the same time that 2004 slaughter and production are shaping up to be larger-than-earlier expected. Despite the depreciated value of the U.S. dollar, record-large numbers of imported Canadian feeder pigs and slaughter hogs are moving slaughter and production upward, while pork consumers—domestic and foreign--appear willing to pay higher prices for greater supplies of pork products.

Consumer interest in high protein diets, relatively high prices for substitute animal proteins, and strong Asian demand for U.S. pork products, are the major factors driving the pork market right now.

Higher Hog and Pork Prices Expected

Price forecasts for first-half 2004 hogs and pork products moved higher at the same time that 2004 slaughter and production are shaping up to be larger-than-earlier expected. Despite the depreciated value of the U.S. dollar, record-large numbers of imported Canadian feeder pigs and slaughter hogs are ratcheting slaughter and production upward, while pork consumers– domestic and foreign–appear willing to pay higher prices for greater supplies of pork products. Consumer interest in high protein diets, relatively high prices for substitute animal proteins, and strong Asian demand for U.S. pork products, are the major factors driving the pork market right now.

U.S. Pork Production Edging Higher on Larger Slaughter

Weekly Hog Slaughter
Percent change from last year
Pork production is expected to be 20.3 billion pounds of pork in 2004, on a slaughter of more than 102 million head of hogs. At the margin, U.S. hog slaughter and pork production are each being ratcheted higher by U.S. hog finisher demand for Canadian feeder pigs, and by U.S. processor demand for Canadian slaughter hogs.

Weaker product demand and a lower slaughter in Canada make U.S. processor offers more attractive to sellers of Canadian slaughter hogs. On a cumulative basis through February 21, 2004, Canadian slaughter was 1 percent lower compared with the same period last year, while cumulative U.S slaughter over the same period is running about 1 percent ahead of last year.

USDA’s Animal and Plant Health Inspection Service (APHIS) data suggest that imports of Canadian feeder pigs so far in 2004 are running significantly ahead of the same period last year.

Through the third week of February, APHIS reported that more than 1.4 million swine were imported from Canada, 66 percent of which were feeder animals. Last year during the same period, less than 1 million animals came across the border, 70 percent of which were feeder animals.

Canadian Hogs Become an Important Component of U.S. Hog Supply

Data sources from both the United States and Canada suggest that the integration of U.S. and Canadian hog production into a North American industry continues. Effectively, part of the U.S. breeding herd has been replaced by breeding herd increases in Canada. APHIS data show that a significant share of imported Canadian swine originate in Ontario and Manitoba.

Statistics Canada’s most recent issue of Hog Statistics shows breeding herds in Ontario and Manitoba were 6.3 and 5.5 percent greater in January 2004 than a year earlier. Swine enterprise budgets published by the Ontario Ministry of Agriculture and Food show that only farrow-to-wean operations were profitable in 2003. On a cumulative basis, farrow-to-wean operations in Ontario earned $CN 1.17 per sow, while other hog production operations (farrow-to-feeder pig, farrow-to-finish, finishing) lost between $CN 158 and $CN 242 per sow in 2003.

Hog and Pork Prices Higher, Despite Larger Supplies

The first quarter price of U.S. 51-52 percent lean hogs (live equivalent) is expected to average between $42 and $43 per cwt (hundredweight). The first quarter 2004 hog price forecast is 20 percent above first-quarter 2003, while pork production is likely to run more than 3 percent ahead of last year. Part of the reason that packers are paying more for hogs this quarter is because wholesalers are paying higher prices for pork products. For January-February, the USDA Estimated Pork Carcass Cutout has averaged $62.29, 17 percent higher than the same period last year. Higher carcass values likely reflect domestic consumers’ willingness to pay more for pork products, and increased foreign demand for U.S. pork products in the face of reduced supplies of both imported beef and poultry products due to disease bans or restrictions. First-quarter 2004 retail pork prices are expected to average in the upper $2.60s per pound, about 2 percent higher than in the same period last year.

Two factors likely explain U.S. consumers’ willingness to pay more for greater quantities of pork: First, prices of substitute animal proteins—beef and poultry—are significantly higher than a year ago. Retail beef prices have indeed declined since discovery of a BSE infected animal on December 23, 2003, but first-quarter 2004 beef prices remain 12 percent above a year earlier. First-quarter 2004 retail chicken prices are almost 7 percent higher than last year, due primarily to lower growth in the U.S. poultry industry. Higher relative prices for beef and poultry make pork products more attractive to U.S. consumers. When consumer demand increases faster than pork supply, prices rise.

Another factor driving hog and pork prices higher in the first quarter—despite larger pork supplies—appears to be a discrete jump in consumer demand for all animal protein—beef, pork, poultry, eggs, and dairy products. Anecdotal evidence in the popular media, as well as in the industry/trade press, supports the hypothesis that significant numbers of weight-conscious U.S. consumers have increased consumption of animal proteins in pursuit of weight control/loss goals. U.S. consumers appear willing and able to pay higher prices for available supplies of pork products.

Foreign demand for U.S. pork is also contributing to the escalation of U.S. pork prices. With important Asian markets closed to both North American beef and poultry from Avian Influenza affected countries, importers have few alternatives to pork products. Moreover, the depreciated value of the U.S. dollar makes U.S. pork products highly attractive to Asian importers. Foreign demand thus combines with strong domestic demand to bid pork and hog prices to higher-than-earlier anticipated levels.

2003 Exports Increase Almost 7 Percent; Strong Growth in 2004 Expected

The United States exported over 1.7 billion pounds of pork products in 2003, more than 6 percent above the previous year’s total. Japan, Mexico, and Canada together accounted for almost 80 percent of total U.S. pork exports. A lower valued dollar and economic growth created demand for U.S. pork products last year. The same factors, together with disease-related foreign market closures to beef and poultry will likely spur U.S. pork exports this year.

Japan imported more than 790 million pounds of U.S. pork products last year, an increase of more than 2 percent over 2002. Over 50 percent of total U.S. pork exports were sent to Japan, making it by far the largest overseas market for the U.S. pork industry. Last year, a respectable rate of economic expansion and a relatively strong yen likely pushed Japanese pork imports higher. The same factors again favor higher Japanese imports this year. And clearly, the closure of Japanese markets to imports of North American beef and to poultry from AI afflicted countries creates very strong opportunities for pork exporting countries.

The relatively cheap dollar will help to make U.S. pork products especially attractive to Japanese buyers compared with Canadian and Danish products, the other major international products in the Japanese market.

Canada received about 10 percent of U.S. exports last year. U.S. exporters shipped 191 million pounds of pork to Canada last year, an increase of almost 2 percent over 2002. In 2004 U.S. exports to Canada are likely to increase on the strength of the high degree of integration that exists between the Canadian and U.S. pork markets. This factor, together with the lower valued U.S. dollar, creates opportunities for companies to source pork products in the United States for sale in Canada.

After contracting in 2002, Mexican demand for U.S. pork products increased more than 11 percent in 2003. Mexico imported almost 350 million pounds of U.S. pork in 2003, accounting for almost 18 percent of U.S exports last year. A recovering economy largely explains expansion of pork demand in Mexico last year. Because of the positive relationship between economic growth and meat demand in Mexico, strong economic growth prospects for 2004 bodes well for continued expansion of Mexican imports of U.S. pork products.

U.S. Imports Higher in 2003, Expected To Be Flat in 2004

The United States imported 1.2 billion pounds of pork in 2003, almost 11 percent more than in 2002. As in past years, Canada and Denmark were the primary sources of foreign pork in 2003. Canada accounted for 81 percent of U.S. imports last year, and 13 percent of imports were sourced from Denmark. Import growth slowed in the later quarters of 2003, as the value of the U.S. dollar declined. The relatively weak U.S. dollar will likely hold 2004 imports to about even with those of last year.

Fundamentals of Canadian Market To Improve in 2004, but U.S. Imports Again Likely To Be Record

U.S. imports of Canadian hogs were record-large last year at 7.4 million head, almost 30 percent more than in 2002. Three key factors explain the increase: first, appreciation of the Canadian dollar made Canadian pork products less competitive in foreign markets, weakening Canadian packers’ margins and spelling “trouble” for an industry that exports fully half of its pork production.

Second, the identification of a BSE-infected cow in May appeared to shift Canadian consumers’ demand from pork to beef, compounding an already difficult situation. And third, new feeder pig operations in Ontario and Manitoba, built to meet U.S. hog finisher demand, came on line in 2003. When added to increased numbers of slaughter animals coming across the border, the aggregate numbers were record.

January 1, 2004, breeding herd inventories (up 6 percent) recorded by Statistics Canada in Manitoba and Ontario–the source of most imported Canadian feeder pigs–make it likely that increased numbers of feeder animals will cross the border in 2004. Slaughter hog imports are expected to decline however, given strong Asian demand for pork products. The lower valued U.S. dollar will translate into fewer Canadian dollars, making feeder pig operations less profitable this year. But with hog prices driving strong hog finishing demand in the United States, and few marketing alternatives in Canada, it is likely that U.S. imports of Canadian hogs will be record large--7.8 million head--again in 2004.

National Pork Producers’ Council Files Anti-Dumping Petition

On March 5, the National Pork Producers’ Council (NPPC) and other state pork production organizations charged in petitions filed with the U.S. Department of Commerce and the International Trade Commission, that “subsidies” paid by the Canadian Government are enabling Canadian hog producers to “dump” live hogs in the U.S. market. The petition will shortly be made available on the web site of the International Trade Commission.

Links

For more information view the full Livestock, Dairy and Poultry Outlook - March 2004 (pdf)

Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - March 2004