Summary

High feed costs are expected to reduce the weights at which live hogs are marketed for slaughter for the remainder of the year and through 2012.

Lower slaughter weights are forecast to marginally reduce pork production during this period.

China was a major buyer of US pork products in July. Total pork exports in July were almost 18 per cent higher than a year ago.

Pork/Hogs

High feed prices likely to drive hog weights lower

With larger anticipated fall-quarter hog numbers just around the corner, US hog prices have tailed-off steadily since reaching a record-high of $79.33 per cwt in early August. At the same time, cash prices of corn in Iowa, the largest hog-producing state in the country, have traded in the high $6 to low $7 per bushel range since mid-July.

Declining output prices, concurrent with increasing costs of major feed inputs, spell narrower spreads between the cost of feed and the selling price of finished hogs. While producers’ estimated quarterly feed cost spreads remain positive through 2012 – calculated with USDA forecast prices of corn, soybean meal and hogs – spreads will narrow for the fourth quarter of 2011, and spreads for the first three quarters of 2012 are below those of 2011.

Hog producers are likely to respond to lower feeding spreads by reducing the weights at which they market hogs for slaughter. However, packer discounts for underweight animals are likely to limit producer incentives to reduce slaughter weights too sharply. USDA is reflecting expectations for narrowing feed spreads in lower year-over-year estimated average dressed weights for the second half of 2011 and into 2012. Third-quarter commercial pork production is expected to be nearly 5.5 billion pounds, about one per cent higher than a year ago. Fourth-quarter pork production is anticipated to be 6.1 billion pounds, about one per cent below the same period last year. Prices for live equivalent 51-52 per cent hogs are expected to average $70-$71 per cwt in the third quarter, about 17 per cent above a year ago. Fourth-quarter prices are expected to be $60-$64 per cwt, almost 24 per cent above the same period last year.

China a major buyer of US pork products in July

US pork exports were up sharply in July, propelled largely by shipments to Asia – China and South Korea in particular. July exports were 386 million pounds, almost 18 per cent higher than a year ago. Evidence of China’s rumoured purchases of US pork products finally showed up in US export statistics: China purchased about 44 million pounds of US pork products in July, more than double the July 2010 volume.

Importation of US pork products appears to be part of an effort by the Government of China to supplement domestic pork supplies in order to reduce food price inflation. Lower–than– expected pork production this year, due to disease outbreaks in 2010 and continued industry exit by small backyard producers, comes at a time when strong economic growth and increasing disposable income have increased pork demand and pork prices. US exports to China are likely to remain year-over-year higher for the balance of 2011.

Third-quarter US pork exports are expected to be 1.2 billion pounds, more than 26 per cent above a year ago. Fourth-quarter exports are forecast at 1.3 billion pounds, an increase of more than 13 per cent over fourth quarter 2010. Total exports this year are expected to reach 4.95 billion pounds. Total exports in 2012 are forecast at 5.135 billion pounds, an increase of almost four per cent. Although still robust, the growth rate of 2012 exports is expected to moderate compared with 2011 as Asian pork supplies rebound from production declines due to disease problems.

Further Reading

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