US Pork Outlook Report - January 2010

Pork production in 2010 will be lower than 2009 but the reduction will probably be smaller than those previously forecast, according to the USDA Economic Research Service (ERS) January 2010 Livestock, Dairy and Poultry Outlook. nd Poultry Outlook.

20 January 2010

5 minute read

Summary

Productivity increases and a smaller than expected decline in fall farrowings are likely to offset most effects of lower 1 December breeding inventories. While pork production in 2010 will be year-over-year lower, reductions will probably be smaller than those forecast last month. November pork exports were more than 11 per cent ahead of exports in November 2008.

1 December Breeding Inventory Reductions Tempered by Larger-Than-Expected Farrowings and Productivity Gains

The Quarterly Hogs and Pigs report, issued by USDA on 30 December 2009, provides a 1 December snapshot of an industry whose modest efforts to reduce breeding herds are largely offset by larger-than-expected fall farrowing numbers and strong productivity gains. The report indicated that the US inventory of breeding animals declined for the seventh consecutive quarter since 1 June 2008. At 5.85 million head, the 1 December 2009, breeding inventory was almost 3.5 per cent smaller than a year earlier. This means that the US pork industry has reduced its productive capacity by 6.1 per cent – which amounts to 383,000 breeding animals – since the cyclical peak of 6.23 million head on 1 December 2007.

For an industry that, according to calculations by Iowa State University, has lost money in 24 of the last 26 months, breeding herd reduction as a means of lowering production is the industry’s consistent response to persistent negative returns. The December report however, showed that larger-than-expected fall farrowings and litter rates largely offset breeding herd reductions and have negative implications for reductions in first-half 2010 pork production. The report indicated that 2.974 million sows farrowed in the September-November quarter, a larger number than producers’ second intentions suggested in September. The fall pig crop implies a litter rate of 9.7 pigs-per-litter, significantly above the year-earlier rate of 9.5. The ‘bottom-line’ is that the December report, coupled with a slightly larger 2010 live swine import forecast, points to 2010 pork production closer to two per cent lower, year-over-year, than to the almost-3-per cent reduction expected last month.

US commercial pork production in 2010 is forecast at 22.6 billion lbs, 1.6 per cent lower than last year. First-quarter prices of 51-52 per cent lean hogs will likely average $43-$45 per cwt, almost 4.5 per cent above first-quarter 2009. For 2010 hog prices are expected to average $44-$48 per cwt, almost 12 per cent above 2009. While higher hog prices by themselves don not necessarily spell profitability for hog producers, January WASDE price forecasts for corn and soybean meal imply producer break-even hog prices in the mid-$40 per cwt range, suggesting that most US hog operations could break even in 2010.

November Exports Year-Over-Year Higher

November pork exports were a very healthy 383 million pounds, 11.3 per cent greater than a year earlier. While the three largest foreign markets in November were Japan, Mexico and Canada, shipments to both Japan and Canada were lower than in November 2008. The countries that largely boosted November 2009 exports past those of a year earlier were Mexico (+23.9 per cent), Hong Kong (+58.1 per cent) and South Korea (+50.5). Year-over-year lower exports to Russia – the sixth largest foreign market in November – were more than offset by large increases to the Philippines, Australia, Taiwan and Ukraine.

For the January-November 2009 period, US exports were almost 14 per cent below the comparable period in 2008. With the exception of Mexico, most large US export markets – particularly those in Asia – were lower through November, largely on account of weak economic conditions.

The United States is expected to export 4.5 billion pounds of pork in 2010, 8.4 per cent more than in 2009. Economic recovery in key US export markets and favourable exchange rate values are expected to drive exports this year. The 2010 forecast was lowered slightly this month on account of Russia’s lowered TRQ allocation assigned to the United States, and also due to trade disruptions from plant de-listings that are expected early in the year.

US pork imports increased about 6.5 per cent year-over-year in November. For 2009 through November, imports have increased just marginally, by less than one per cent. Most of the increase in November came from Canadian products. Through November 2009, Canada has accounted for about 81 per cent of US pork imports, Mexico for about two per cent, Denmark for 10 per cent, Poland for about three per cent, and the Netherlands and Italy each for one per cent. For 2009, imports should account for 4.3 per cent of total US pork disappearance, about the same as in 2008. For this year, imports of 900 million pounds are expected to account for 4.7 per cent of total US pork disappearance.

US imports of live swine were off by more than 30 per cent, year-over-year, in November. For 2009 through November, swine imports – 99.9 per cent of which are of Canadian origin – were more than 32 per cent lower than in the same period of 2008. Lower US imports likely result from a combination of factors, including the appreciation of the Canadian dollar – which effectively ‘taxes’ repatriated earnings of Canadian hog exporters – ongoing herd contraction in Canada, increased slaughter capacity in Manitoba, and stated preferences of some US packers for US-origin hogs.