Summary

Hogs/pork: The USDA forecast for fourth-quarter pork production was revised to reflect larger-than-expected slaughter in November and December. Fourth-quarter commercial pork production is expected to be 6.1 billion pounds, almost 8 percent higher than a year ago. USDA releases the Quarterly Hogs and Pigs report on December 27, 2007.

Fourth-Quarter Pork Production Accelerates

The USDA forecast for fourth-quarter 2007 pork production was increased 75 million pounds from last month’s production forecast. The revised estimate places fourth-quarter U.S. commercial pork production at 6.1 billion pounds, almost 8 percent higher than a year ago. The higher pork production estimate reflects higherthan- previously-forecast numbers of slaughter-ready hogs delivered to U.S. hog processing plants in November and December. New insights into hog and pig numbers will be provided by USDA’s Quarterly Hogs and Pigs report, scheduled for release on December 27, 2007.

Large fourth-quarter hog supplies have driven hog prices to annual lows, which is typical the for annual pork production cycle. Prices of live equivalent 51-52 percent hogs likely achieved annual lows in November, at $36.95 per cwt, and are expected to range between $38 and $39 per cwt for the quarter. With current hog production break-even costs in the high $40 per cwt region, many hog producers are operating in the red, likely for the first time since early 2004.

Solid Pork Demand Moving Larger-Than-Expected Pork Supplies

Available information on wholesale prices and cold stocks suggests that the largerthan- expected pork supplies are being marketed to domestic and foreign consumers, rather than accumulating as cold stocks. October 31 cold stocks information for pork shows only a small year-over-year increase of less than 2 percent. Most of the increase is due to higher ham stocks, which may be attributable, in part, to seasonal factors, as well as to lower sales to Mexico.

Estimated Federally Inspected weekly pork supplies for the 8 weeks up to December 1, which averaged about 8 percent higher than a year ago, appear to have pressured wholesale prices lower, but by less than in comparable periods in the recent past. The USDA Estimated Pork Carcass Cutout for October and November 2007 averaged almost 11 percent below the same period last year. The only other period in the recent past when October-November production increases were comparable to 2007 was in 1998, when a 10-percent increase in production was associated with a 31-percent drop in wholesale prices.

The fact that pork prices have not fallen as sharply as they did in 1998 is likely attributable, in part, to the contribution made by export markets in expanding demand for U.S. pork. USDA forecasts fourth-quarter 2007 pork exports at 860 million pounds, almost triple the volume of exports in the same period 9 years ago. Thus, 2 months into the fourth quarter of 2007, it appears that robust demand factors are helping to move large volumes of pork through the supply chain to foreign and domestic consumers. Indeed, on the export side, attractive U.S pork prices and the low-valued U.S. dollar are drawing significant quantities of U.S. pork into foreign markets. And on the domestic side—which accounts for about 86 percent of annual pork disappearance—year-over-year higher wholesale beef and chicken prices are likely helping to market seasonally large supplies of pork to domestic consumers.

Pork Exports On A Tear

U.S. pork exports for October—the first month of what is typically the strongest quarter in the calendar year for exports—were more than 31 percent greater than October 2006. This strong export showing for October pushed cumulative exports for 2007 to 2.5 billion pounds, almost 3 percent above the same period a year ago. Japan, China\Hong Kong, Mexico, Russia, and Canada were the top 5 most important destination markets in October. Together, this country set accounted for more than 81 percent of October exports. Factors that increase incentives for foreign purchase of U.S. pork products include seasonally lower U.S. pork prices, together with currently low foreign exchange values of the U.S. dollar.

Further Reading

- You can view the full outlook report by clicking here.

December 2007