US Pork Outlook Report - May 2010

Increased pork production is likely to be encouraged by higher hog prices in 2011, according to the USDA Economic Research Service (ERS) April 2010 Livestock, Dairy and Poultry Outlook.

19 May 2010

7 minute read

Summary

Prices of live equivalent 51 to 52 per cent hogs are expected to continue to reflect lower supplies and recovering consumer demand. For 2010 prices will likely average $55-$57 per hundredweight (cwt), with US commercial pork production off by 3.3 per cent. Production next year will likely rebound to 2.1 per cent above 2010. Hog prices in 2011 are expected to reflect larger supplies, falling two per cent, to between $53 and $57 per cwt. First-quarter US pork exports were 1.05 billion pounds. Exports for 2010 are expected to be 5.7 per cent above those of 2009. Next year exports will likely increase modestly – 4.4 per cent – reflecting ongoing recovery of foreign pork demand.

Higher Hog Prices Likely to Encourage Increased Pork Production Next Year

Lighter-than-expected weekly hog slaughters in April prompted USDA to adjust slaughter forecasts downward for the balance of 2010. Smaller slaughter numbers are likely to be partly offset by higher dressed weights than expected earlier, resulting from continued strong hog prices, moderate feed costs, and favourable spring weather conditions in major hog-producing states. Pork production in 2010 is expected to be 22.2 billion pounds, 3.3 per cent lower than last year.

Fewer available slaughter animals, however, is one of the more important reasons that hog prices remain significantly above year-ago levels. Moreover, higher hog prices are likely to induce higher farrowings late in 2010 and into 2011, which in turn points to year-on-year higher pork production in 2011. Commercial pork production in 2011 is expected to be 22.7 billion pounds, about two per cent more than this year’s production forecast.

Hog price forecasts for the balance of 2010 reflect smaller hog numbers and recovering consumer demand for US pork products. Second-quarter prices for live equivalent 51 to 52 per cent lean hogs are expected to be $60 to $62 per cwt. Expectations for the third quarter of this year are for hog prices to average $59 to $63 per cwt, before declining to $50 to $54 per cwt in the fourth quarter. The expected price range for 2010 – $55 to $57 per cwt – exceeds that of 2009 by more than 36 per cent, and is the highest since 1996. Prices for the balance of 2010 (second quarter through fourth quarter) also imply positive producer returns, given current USDA price forecasts for corn and high protein-soybean meal, the two major hog feed components.

Average hog prices in 2011 are likely to be lower than for this year due to higher pork production in quarters two to four. Next year’s prices of live equivalent 51 to 52 per cent lean hogs are expected to be $53 to $57 per cwt, almost two per cent below price forecasts for 2010, but still well above most hog producers’ break-even point, given USDA feed input prices.

The higher hog prices that relatively tight hog supplies bring about are expected to combine with recovering consumer demand to result in higher retail pork prices both in this year and in 2011. Second-quarter 2010 retail pork prices should average in the mid-$2.90s per pound, and climb to about $3.00 per pound in the second half of this year. Retail prices next year are expected to average just over $3.00 per pound, a year-over-year increase of about 2.7 per cent over retail prices this year.

First-Quarter Pork Exports up Slightly Year-on-Year

US pork exports finished the first quarter of 2010 at 1.05 billion pounds, 1.3 per cent greater than the same period in 2009. The list of the top five foreign buyers of US pork was about the same as a year ago, and their year-on-year per cent changes are calculated below.

The forecast for 2010 exports remain unchanged at 4.4 billion pounds. However, persistent year-on-year declines in exports to Japan so far in 2010 are a source of concern. Japan is by far the largest foreign buyer of US pork, typically accounting for almost 30 per cent of US exports, with the next largest importer – typically Mexico – accounting for about 20 per cent. So far this year, increased demand for US products from other large importers – especially Mexico and Hong Kong – has largely offset lower shipments to Japan.

Japanese government data indicate an overall reduction in first-quarter 2010 pork imports of nearly six per cent, with lower shipments from the United States accounting for most of the reduction. First-quarter pork shipments from the most important US competitors in the Japanese market – Denmark and Canada – are significantly above year-earlier volumes. Canada’s first-quarter exports to Japan increased 4.5 per cent compared with a year ago. Denmark exported over 20 per cent more pork to Japan than in the same quarter last year. During the first quarter, the year-on-year increase in average US hog prices when converted to a Yen equivalent was larger than that for Canada or Denmark. To the extent that these increases were reflected in changes in pork values, the change in relative values may have accounted, at least partly, for the decline in Japan's imports from the US while those of Canada and Denmark increased.

Most macro-economic indicators appear positive for US pork export growth prospects in 2011. Continued economic recovery abroad should drive modest increases in consumer demand for pork products in foreign markets next year. US pork exports are expected to increase to 4.6 billion pounds, more than four per cent over forecast exports in 2010.

Imports of Both Pork and Live Swine Were off in the First Quarter

First-quarter imports of pork were 199 million pounds, 3.1 per cent less than a year ago. Shipments from both major suppliers of foreign pork products to the United States – Canada and Denmark – were lower in the first quarter. At the margin, exchange rate relationships likely accounted for part of the reduction in imports from Canada. For 2010, total imports of 855 million pounds are anticipated, with a slight increase expected in 2011, to 885 million pounds.

Imports as a percentage of total US pork disappearance averaged slightly above five per cent between 2000 and 2009. For both 2010 and 2011, the ratio of imports to disappearance is slightly below the recent average, meaning that imports are a slightly less important component of total pork consumed in the United States.

First-quarter live swine imports were almost 18 per cent lower than a year ago. The vast majority of live imports are of Canadian origin. Lower imports are a continuation of a trend that began in the second quarter of 2008, and imports are expected to remain low into next year. Total live swine imports, both this year and next, are expected to be about six million head.

It is worth pointing out that two categories of live swine imports – feeder pigs weighing over seven kilograms but less 23 kilograms, and hogs weighing more than 50 kilograms – were higher year-on-year than first-quarter 2009. These increases could reflect very strong US demand for hogs, in light of recent hog prices.