US Pork Outlook Report - July 2007

By U.S.D.A., Economic Research Service - This article is an extract from the July 2007: Livestock, Dairy and Poultry Outlook Report, highlighting Global Pork Industry data.
calendar icon 20 July 2007
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Second-half 2007 pork exports will likely be lower than a year ago. In 2008, lower pork prices from increased U.S. supplies and stronger economic growth in Mexico are expected to bring about resumed, moderate export growth.

U.S. exports in 2008 are expected to be about 3.1 billion pounds, slightly more than 3 percent above exports this year. Lower second-half exports this year and larger supplies are expected to keep hog prices about even with second-half prices of 2006. Third-quarter 2007 prices for 51-52 percent live equivalent hogs are expected to range between $51 and $53 per hundredweight (cwt), close to third-quarter prices a year ago. Fourth-quarter prices are expected to range between $45 and $49 per cwt, a little higher than fourth-quarter 2006.

Quarterly Hogs and Pigs Indicates Continuation of Slow-Growth in Breeding Herd

Swine breeders appeared to shrug off uncertainties surrounding feed costs and indications of softening pork demand, continuing to slowly add animals to the U.S. breeding inventory. The Quarterly Hogs and Pigs report issued on June 29, 2007 indicated that the June 1 inventory of animals kept for breeding had increased by 35,000 head since last March, and by almost 1 percent since June 1, 2006. The largest herd additions occurred in Minnesota and Missouri, where inventories for both had increased by 20,000 head since June 1, 2006. Minnesota’s breeding inventory increased by 3 percent, and Missouri’s by 6 percent, compared with June 2006.

The quarterly report also showed continued increases in litter rates. The litter rate for the first quarter of 2007 was revised upward from 9.08 pigs per litter to 9.09, and the rate for the March-May pig crop came in at 9.15 pigs per litter, a record for the U.S. breeding herd.

The December-May pig crop, together with assumptions of slightly higher yearover- year average dressed weights, points to second-half 2007 pork production of about 11.1 billion pounds, an increase of almost 3.9 percent over the same period last year. All together, reported June-November farrowing intentions at 1 percent above a year earlier—together with assumptions of slightly higher 2008 December- May farrowings, of continued growth of litter rates, and slightly higher year-overyear average dressed rates—imply an estimated 2008 pork production of almost 22 billion pounds, more than 1.5 percent greater than production this year.

U.S. Pork Exports Lower Through May

U.S. exporters shipped 1.259 billion pounds of pork in the first 5 months of 2007, almost 3 percent lower than in the same period last year. Export data from the U.S. Commerce Department show that lower exports to two major markets, Mexico and Russia, largely explain recent lower foreign demand for U.S. pork products. Bigger exports to three of the five most important U.S. export markets—Japan (+11.5 percent), South Korea (+3.1 percent), and Canada (+2.5 percent)—could not offset lower demand in Mexico, the second largest buyer of U.S. pork, and in Russia. Exports to Mexico so far in 2007 are off by almost 30 percent, while U.S. exports to Russia are down by more than 23 percent.

Weaker Macroeconomic Variables May Be Contributing Factors to Lower Exports to Mexico

The figure below shows that U.S. pork exports to Mexico in the first 5 months of 2007 were largely consistent with seasonal patterns of 2000-2006, as reflected in the seasonal index. But while correlating with past seasonal trade patterns, trade with Mexico in 2007 has largely taken place at lower volumes than in recent years. Lower trade volumes are shown in the second figure, where trade in 2007 falls consistently below 2006, dropping below the 3-year average in March, and below the 5-year average in April.

Weakening Mexican consumer demand is reducing import demand for most U.S. animal proteins. Part of reduced Mexican consumer demand may be related to a weakening Mexican economy that is tied to a slowdown in the U.S. economy. Data indicate that the value of U.S. imports of Mexican goods and services has slowed since the second quarter of 2006. This is significant because the United States accounts for more than 85 percent of the value of Mexican exports. Slower recent economic activity in the United States likely translated into lower U.S. import demand for Mexican goods and services, depressing incomes of Mexican companies and wages of Mexican workers. Lower wages, over time, restrict consumer incomes and expenditures for most goods, including food.

Another factor that could be contributing to lower Mexican demand for U.S. meat products may be the negative impact of higher interest rates on the U.S. construction industry. With many Mexican immigrants employed in the U.S. construction industry, repatriating some portion of their income to family members in Mexico, a slowdown in the sector is likely to translate into fewer construction jobs, lower wages, and decreased repatriated earnings to Mexico. Lower Mexican consumer incomes could be a contributing factor to lower export volumes of most U.S. animal proteins (i.e. pork, beef, poultry, and dairy products) through May of this year.

Brazil Appears To Be Dominant in Russian Market in Early 2007

Russia's import data through March indicates that Brazil is the dominant exporter to that market and is expanding its share of Russia's imports lost during 2006. Despite a low-valued U.S. dollar, and a high-valued Brazilian real, the first-quarter volume of Brazilian pork imported by Russia increased more than 34 percent. Higher imports of Brazilian pork this year come after Russian restrictions on Brazilian pork products, on disease-related grounds, hindered trade in 2006. The rate of increase in Brazilian shipments suggests that Brazilian exporters are in aggressive pursuit of market share in Russia, which may limit U.S. exports for the balance of this year.

2007 Export Volume Expected Flat This Year, Moderate Growth To Resume in 2008

The balance of 2007 is likely to see continued repetition of past seasonal patterns, but at flat-to-lower volumes, compared with 2006. U.S. pork export quantities for 2007 are expected as follows:

Lower pork prices next year from increased U.S. supplies, coupled with stronger economic growth forecasts for Mexico, are expected to bring about increased export growth in 2008. U.S. exports next year are expected to be about 3.1 billion pounds, slightly more than 3 percent above exports this year.

Import Forecasts Increased Slightly, but 2007 Still Below 2006

Through May, U.S. pork imports continued to run about 1.7 percent below 2006 levels, largely due to the relatively low value of the U.S. dollar compared with the currencies of Canada and Denmark, the countries that account for more than 90 percent of U.S. pork imports. That said, the second quarter 2007 export forecast was increased 15 million pounds, to 235 million pounds, to account for a later than normal spike in imports from Denmark, which typically occurs at the end of the first quarter of each year. U.S. imports of Danish pork peak early in the year, due to the seasonal popularity of the cuts in which Denmark specializes. U.S. pork imports are expected to be 954 million pounds this year, about 3.5 percent lower than last year. Imports in 2008 are expected to be about the same as this year.

Hog Prices: Lower Exports, Higher Pork Production Point to Flat Second- Half Prices

Lower second-half exports and larger supplies are expected to keep hog prices about even with second-half prices of 2006. Third-quarter 2007 prices for 51-52 percent lean, live equivalent hogs are expected to range between $51 and $53 per cwt, close to third-quarter prices a year ago. Fourth-quarter prices are expected to range between $45 and $49 per cwt, a little higher than in the fourth-quarter 2006.

Retail Pork Prices Moving Up

Second-quarter retail pork prices averaged $2.87 per pound, almost 3 percent above the same period last year. Increased retail pork prices likely reflect the higher cost of marketing meat products, with much of the cost increases probably accounted for by higher energy prices. The total pork price spread increased almost 1 percent from the same period a year ago, with most of that increase attributable to a wider wholesale-to-retail component of the supply chain. It appears that retailers, in turn, were able to pass along some of their cost increases to retail consumers.

Further Information

For more information view the full Livestock, Dairy and Poultry Outlook - July 2007 (pdf)

July 2007

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