US Pork Outlook - November 2010

Next year, the US pork industry will struggle to adjust to expected higher feed costs, and output is expected to be 1.5 per cent above the 2010 level, according to the latest Livestock, Dairy, and Poultry Outlook from the USDA's Economic Research Service.
calendar icon 19 November 2010
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Higher hog weights and higher-than-expected pork cold stocks were factors in lower October hog and pork prices. Next year, the US pork industry will struggle to adjust to expected higher feed costs, with little attention given to expansion. Pork production next year is expected to be 1.5 per cent above the 2010 level. Lower third quarter exports are likely attributable to higher US pork prices.

Higher Hog Dressed Weights Pressure Prices

Prices of both hogs and pork declined sharply in October, as pork supplies increased with accelerating seasonal slaughter numbers and skyrocketing hog weights. The October price of live equivalent 51 to 52 per cent lean hogs was $52.14 per cwt. While more than 39 per cent higher than in October 2009, hog prices last month were 13.6 below prices in September, almost double the average six to seven per cent September- October drop-off seen in recent years. On the pork side, the wholesale carcass cut-out in October was $79.91, almost 45 per cent above a year earlier. But in recent years, the seasonal drop-off between the September and October cut-out has averaged between six to seven per cent. This year, however, the October cut-out fell almost 12 per cent below wholesale prices in September.

While prices of hogs and pork typically decline as hog slaughter numbers increase to their annual fourth-quarter-highs, 2010 prices of hogs and pork fell more sharply than in recent years. This could be due in part to two factors: first, on the supply side, live and dressed weights of hogs in October were much higher than expected. Second, on the demand side, prices of pork bellies peaked in mid-September and declined through October, pushing the USDA wholesale pork cut-out down. With respect to hog dressed weights, estimated average daily carcass weights in October 2010 were four pounds heavier than average daily weights a year ago and 5.3 pounds above the three-year average. Estimated carcass daily weights in October, which averaged 207 pounds for the month, were five pounds heavier than average federally inspected dressed weights in September. The figure below shows the wide positive October gap between estimated daily average carcass weights this year and 2009 and the 3-year average.

While it is impossible to pinpoint the cause(s) of heavier weights with precision, there is strong anecdotal evidence to suggest that feed quality and weather contributed to heavier animals in October. To the extent that last year’s corn crop was of poorer nutritional quality, switching to feeding with new-crop corn has probably accelerated weight gains that typically come about as the weather turns cooler in the fall. Thus, the switch to new-crop corn in hog rations combined with cooler temperatures likely created conditions that supported weight gains. On the flip-side however, heavier weights and resulting larger pork supplies probably contributed to lower pork and hog prices in October.

USDA lowered fourth-quarter prices of 51 to 52 per cent lean hogs to $50 to $52 per cwt, down from $53 to $55 per cwt last month. The fourth-quarter pork production forecast was increased 73 million pounds to 5.925 billion pounds, based on higher average dressed weights.

The major challenge – and source of uncertainty – for the US pork industry in moving forward is higher feed costs and how the US industry will adjust to them. Producer returns calculated with USDA forecasts of feed and hog prices show a decline from October, but still-positive returns through 2011. It is more than likely that 2011 will be a year in which the industry struggles to acclimatise to higher feed costs, without much attention to expansion. Minimally positive farrowings next year, along with higher dressed weights resulting from better nutritional values in new-crop corn, are expected to put commercial pork production next year at 22.6 billion pounds, an increase of 1.5 per cent over this year. The slightly higher production increase anticipated next year, compared with last month’s production forecast, is a result of higher expected average dressed weights offsetting slightly lowered forecasts of farrowings in 2011.

Third-Quarter-Pork Exports Slide

Third-quarter pork exports were 952 million pounds, down 5.4 per cent from the same period a year ago. With the exception of Canada, all major US export markets were year-over-year lower in third-quarter 2010. Lower exports are most likely attributable to elevated US pork prices in the July-September period. The wholesale cut-out averaged $88.94 per cwt, more than 56 per cent higher than the average wholesale price of $56.94 per cwt a year earlier. With a competitive US dollar vis-à-vis major trading partners, and with economic recovery proceeding in advance of the US economy’s growth rate in most parts of Asia, Mexico, Canada and Australia, high US prices appear to be a major factor explaining weaker third-quarter foreign purchases of US pork. The 15 largest foreign destinations for US pork in the third quarter are listed below.

Third quarter US pork imports were 13 per cent higher than a year earlier, at more than 237 million pounds. The largest foreign shipments came from Canada (13.2 per cent higher compared with a year ago) and from Denmark (0.3 per cent lower compared with the same period last year). Lower US production this year was likely an incentive for third-quarter imports.

Live swine imports were down only 2.5 per cent in the third quarter, at 1.479 million head, the lowest quarterly decline, in percentage terms, since swine imports turned lower in the second quarter of 2008. Lower imports of segregated early-weaned animals (weighing less than 7kg) and slaughter-ready animals offset year-over-year higher imports of feeder pigs (animals weighing between seven and 23kg) and breeding animals.

Further Reading

- You can view the full report by clicking here.

November 2010

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