US Pork Outlook Report - February 2009

In the first quarter, commercial pork production is expected to be 2.7 per cent lower than a year ago, with prices about 8.5 per cent higher than first quarter a year ago, according to the USDA's Economic Research Service in the February 2009 Livestock, Dairy and Poultry Outlook Report. US exports in 2009 are expected to be about 15 per cent lower than last year. US pork imports are likely to be down about 2.5 per cent this year, and live imports about 23 per cent below last year.

17 February 2009

6 minute read

Summary

First-quarter commercial pork production is expected to be 2.7 per cent below production a year ago, with prices of live equivalent 51-52 per cent lean hogs expected to average $42 to $44 per hundredweight (cwt), about 8.5 per cent higher than first quarter a year ago. This year, US exports are expected to be about 15 per cent lower than in 2008. US pork imports will likely fall about 2.5 per cent this year, from 2008 levels. Live swine imports this year are expected to be 7.2 million head, almost 23 per cent below imports in 2008.

Consumer Pork Demand a Key Source of Uncertainty in 2009

Estimated gross margins for US packers began 2009 at levels significantly below those of January 2008 (see figure). The monthly estimated packer margin for January – defined here as the USDA pork carcass cut-out minus the Base Lean Hog Carcass Slaughter Cost – at $1.35 per cwt, was more than 80 per cent below that of a year ago and 75 per cent below the 2006-08 monthly average. Reduced packer margins in January were likely caused by slowly declining supplies of slaughter hogs, which obliged packers to pay almost 13 per cent more for slaughter hogs than they did a year ago. At the same time, larger than expected pork cold stocks and sluggish pork demand likely limited increases in wholesale pork prices – here summarized by the USDA pork carcass cut-out – to 1.5 per cent above those of January 2008.

Generally speaking, from the perspective of the packer, low-to-negative margins usually indicate that either hog prices are 'too high' and/or that pork product prices are 'too low'. Persistent low-to-negative returns often signal the need for industry restructuring and/or contraction. While packer margins could improve later in the year, as 2009 hog prices are expected to average about 1.2 per cent lower than last year, the key to packer margins this year is likely to be pork product demand.

Worldwide recessionary conditions have created more uncertainty about the prices that domestic and foreign consumers of US pork are willing to pay for pork products.

First-quarter commercial pork production is expected to be about 5.9 billion pounds, 2.7 per cent below production a year ago. First-quarter prices of live equivalent 51-52 per cent lean hogs are expected to average $42 and $44 per cwt, about 8.5 per cent higher than first quarter a year ago.

US Pork Exports in December: Back to Earth

US exporters shipped more than 312 million pounds of pork to foreign markets in December, 3.2 per cent more than a year ago. The familiar set of countries – Japan, Mexico and Canada – together accounted for about two-thirds of December exports. For 2008, total US exports were almost 4.7 billion pounds, more than 48 per cent higher than in 2007. Last year, China, Hong Kong, and Russia received considerable attention – with good reason – as China's imports of US pork were almost 59 per cent higher than in 2007, while Hong Kong's were more than 285 per cent higher and Russia's were 76 per cent higher than a year earlier. But in the end, China accounted for 7.8 per cent of total US exports in 2008. Hong Kong accounted for almost 11 per cent and Russia for more than 9 per cent. As in past years, the clear leader in terms of export volume was Japan, with more than 28 per cent of US pork exports in 2008. In 2009, US exports are expected to be 4 billion pounds, about 14 per cent lower than in 2008, but more than 27 per cent above those of 2007.

Neither China nor Hong Kong is expected to be as prominent a buyer in 2009 as they were in 2008. Key determining variables for pork exports in 2009 are likely to be the rates of economic growth in pork-importing countries, the exchange rate value of the US dollar, as well as domestic pork prices.

Imports Year-Over-Year Lower in 2008; Same Expected for This Year

The United States imported almost 832 million pounds of foreign pork last year, more than 14 per cent below imports in 2007. Last year, Canada accounted for almost 78 per cent of US imports, whereas the import volume of Canadian pork products fell by almost 16 per cent. Denmark accounted for slightly more than 10 per cent of US imports, whereas import volume of Danish pork fell almost 15 per cent. The reason for lower US pork imports last year was likely the competitiveness of US domestic pork, i.e. lower prices and strong quality characteristics, particularly after accounting for exchange rates and transportation costs. US imports in 2009 are expected to be 810 million pounds, about 2.6 per cent below imports in 2008.

Exchange Rates and COOL Slow Swine Imports in 2008

US packers and swine finishers imported fewer Canadian swine last year largely because of unfavourable exchange rates early in the year, ongoing herd reductions in Canada, and uncertainty created by country-of-origin-labelling (COOL) toward the end of 2008. Total imports last year were 9.348 million head, almost 7 per cent below a year earlier. Slaughter hog imports declined 30 per cent, feeder pigs were off by 19 per cent, whereas imports of segregated early weaned pigs (SEWs) increased by 44 per cent. Slaughter hog and feeder pig imports were likely slowed by the factors just cited, in addition to transport costs in the first half of 2008. Imports of SEWs were stronger in the first half of 2008, likely before slowing somewhat in the second half, as herd reductions in Canada gained real traction. Swine imports in 2009 are expected to be 7.2 million head, almost 23 per cent below imports in 2008.