Hurricane Katrina NOTE: This report includes updated production forecasts issued by the National Agricultural Statistics Service which generally reflect crop conditions as of the first of the month. The supply and demand impacts of transportation and port disruptions caused by the hurricane are presumed to be temporary based on available information as of September 12, 2005.

Minimal Risk Rule NOTE: Due to uncertainties as to the length of bans on trade in ruminants and ruminant products because of the discovery of BSE in the United States and Canada, forecasts for 2005 and 2006 assume a continuation of policies currently in place among U.S. trading partners. It is assumed that the current delay in the implementation of the minimal-risk rule is temporary. Subsequent forecasts will reflect any announced changes.

Pork/Hogs:

Weekly slaughters of 2 million head or more, until the end of the calendar year, are incorporated into USDA’s fourth-quarter pork production forecast of nearly 5.6 billion pounds. Fourth-quarter hog prices are expected to range between $40 and $42 per cwt.

Wholesale Demand Strengthens Hog Prices in August

Wholesale demand for pork products accelerated in early July, adding strength to hog prices. From the first full week of July, through the end of August, the composite pork cutout value increased almost 15 percent, from $65.65 to $75.30 per cwt. In the same period, prices for 51-52 percent lean hogs (live equivalent) increased almost 9 percent, from $48.44 to $52.71 per cwt.

Most of the increase in the wholesale demand--as measured by the cutout--came from strong demand for bellies and for hams. From July through August, belly primal prices increased 44 percent, and primal ham and shoulder prices increased 23 percent and 6 percent, respectively. Strong belly prices largely reflect seasonal domestic demand for bacon. And while ham and shoulder prices typically begin to increase seasonally by mid-summer--also reflecting domestic demand--there is likely a foreign demand component to strong U.S. ham and shoulder prices.
Since 2003, the bone-in ham and shoulder components of U.S. fresh and frozen pork exports--tariff line 0203--have almost doubled. While bone-in hams and shoulder cuts accounted for 13 percent of fresh and frozen pork exports in 2003, the share of exports almost doubled in the same period last year. So far this year, bonein hams and shoulders--among the few pork cuts for which there is a specific tariff line—account for one quarter of U.S. fresh and frozen pork cuts exports.

July Pork Exports Surge

U.S. exporters shipped almost 225 million pounds of U.S. pork products in July, 34 percent more than July 2004. On a cumulated basis through July, U.S. pork exports are running more than 26 percent ahead of the first 7 months of 2004. For a period of the calendar year when U.S. pork exports typically trend lower, July exports were much higher than forecast. The figure above shows the counter-seasonal increase in July exports.

The sharp increase is due largely to Japan’s surging demand for U.S. pork products. Japan’s July departure from its more-typical demand pattern (see figure below) is likely a result of successful avoidance of the Safeguard mechanism at the end of the first quarter of Japan’s April-March fiscal year. Japanese trade data indicate that first-quarter pork imports were 6 percent below the Safeguard activation level, thereby creating opportunities for larger subsequent imports.

The second and third largest importers of U.S. pork--Mexico and Canada--also moved against the seasonal decline in July. Mexico’s July imports were 8 percent above June, and about 16 percent larger than July 2004. Mexico’s cumulated 2005 imports of U.S. pork are almost 3 percent higher than the same period in 2004. Higher pork imports are likely a function of continued economic growth in Mexico and affordable purchase opportunities in the United States. Canada imported 3 percent more U.S. pork in July compared with June. Canada’s July imports of U.S. pork this year were almost 63 percent larger than July 2004. So far in 2005, Canada has imported 37 percent more pork from the United States than in the same period last year. Canada is likely importing more U.S. pork to replace domestically produced products that are being exported. In the first 7 months of 2005, Canadian exports of fresh and frozen pork--tariff line 0203--were 13 percent above the same period last year. Canada’s best foreign customers so far this year are similar to those of the United States: Japan (+25 percent over the same period last year), South Korea (+134 percent), Australia (+13 percent), Romania (+245 percent), and Russia (+163 percent).

Hog Slaughter Increasing Seasonally

The week of September 3 recorded the first 2-million-plus federally inspected hog slaughter since last February, and likely represents the beginning of the period of seasonally heavy hog slaughter. Weekly slaughters of 2 million head or more, until the end of the calendar year, are incorporated into USDA’s fourth-quarter pork production forecast of about 5.5 billion pounds. Fourth-quarter hog prices will likely range between $40 and $42 per cwt. The third-quarter is expected to end with pork production of nearly 5.1 billion pounds, and an average hog price of between $49 and $50 per cwt. USDA will release the Quarterly Hogs and Pigs report on September 30, 2005.

August retail pork prices were $2.82 per pound, down slightly from $2.84 per pound in July. Retail beef prices were also marginally lower than a month ago, at $3.992 per pound. The USDA Retail Chicken Composite price increased about a penny to $1.74. Lower retail pork prices reflect slightly higher third quarter pork supplies, as well as continued adjustment to lower beef retail beef prices.

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