Lower breeding inventory and farrowing intentions signal lower pork production next year. Commercial pork production in 2009 is expected to be 1.6 percent lower than production this year. Prices of live 51-52 percent lean hogs in 2009 are expected to average between $50 and $55, or 7 percent above prices this year. Although August pork exports were almost 56 percent above a year ago, shipments to China were almost 76 percent below August 2007.

Quarterly Hogs and Pigs Signals Liquidation

The Quarterly Hogs and Pigs report, released by USDA on September 26, 2008, showed a smaller September 1 breeding herd and lower fall and winter farrowing intentions, which will likely constrain quarterly pork production to below yearearlier levels in 2009. The report indicated that the September 1 inventory of swine kept for breeding was almost 3 percent lower than a year earlier. Producers reported fall 2008 farrowing intentions at 5.5 percent lower than a year ago, and winter 2009 intentions at 2.9 percent below the same period a year ago.

The smaller inventory of breeding animals and reduced farrowing intentions reflected in the report suggest that significantly higher 2008 sow slaughter has finally gained “traction” and will shortly have a negative effect on U.S. pork production. Sow slaughter through August was 8.5 percent larger than the same period last year. USDA forecasts that commercial pork production in 2009 will be 23.1 billion pounds, 1.6 percent lower than this year. Lower production will result from producers exiting the industry altogether, or downsizing their operations in response to negative returns. Iowa State University calculates that through September, returns from farrow-to-finish hog operations have been negative in 7 of 9 months of 2008. Negative returns derive from sharply higher feed costs, which in turn are largely the consequence of increased demand for feedstuffs from biofuel producers.

With lower production next year, prices for live equivalent 51-51 percent lean hogs in 2009 are expected to average between $50 and $55, almost 7 percent above average prices in 2008. Despite lower production, lower consumer demand growth next year—both domestic and foreign— compared with consumer demand in 2008, may limit hog price gains next year.

Fourth-quarter 2008 hog prices are expected to average between $46 and $48, with quarterly commercial pork production forecast at 6.3 billion pounds, about 2 percent above a year earlier.

August Pork Exports Strong, but Shipments to China Slow Dramatically

U.S. pork exports continued strong in August. At more than 377 million pounds, shipments were up almost 56 percent from a year ago. For the first 8 months of 2008, exports were almost 3.3 billion pounds, 69 percent higher than the same period last year. The largest destinations for August exports were Japan (+33.6 percent year-over-year), Mexico (+70.3 percent), Russia (+190.5 percent), Canada (+6.4 percent), and Hong Kong (+143.4 percent). China’s imports of U.S. pork, on the other hand, were 75.6 percent lower than in August 2007.

Although China is the fifth-largest foreign destination market for U.S. pork so far in 2008, exports to China have exhibited a very high degree of volatility, particularly since the beginning of this year (figure 1). Factors internal to China, such as food price inflation, swine disease, and preparation for the summer Olympic Games, likely contributed to the volatility of import demand. For 2008, USDA is forecasting total pork imports for China at nearly 1.1 billion pounds. The World Trade Atlas indicates that through August, 52 percent of 2008 Chinese pork imports were of U.S. origin. USDA forecasts a 25-percent reduction of total Chinese pork imports next year, to 794 million pounds. Total U.S. pork exports in 2009 are expected to be 5.1 billion pounds, down 4.1 percent from expected exports this year of 5.3 billion pounds.

Pork, Live Swine Imports Lower in August

U.S. pork imports in August continued to lag behind a year ago. Imports were almost 63 million pounds, 23 percent below August 2007. As usual, the origins of almost 90 percent of imports were Canada (79 percent) and Denmark (9 percent), although shipments from both countries were off by 22.7 percent and 28.4 percent compared with August 2007.

U.S. imports of live swine from Canada in August were almost 714,000 head, 18.7 percent lower than a year ago. Most of the year-over-year decline is attributable to lower slaughter hog imports. Lower slaughter hog imports are likely derived from improved slaughter opportunities in Canada, lower January-June pig crops, and anticipation of the Country of Origin Labeling (COOL) law in the United States.

Further Reading

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October 2008