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Pork Commentary: Exports on a Roll

by 5m Editor
15 April 2008, at 10:08am

CANADA - Last week Jim Long reported that the Iowa-Minnesota lean price was US$48.89 on 21 March. Three weeks later - 10 April - the price was US$ 58.76, giving a 10¢ ($20 per head) increase in 3 weeks. He says producers can expect another $30/head increase in the next few weeks.

We have believed hog prices would tear ahead and it is happening. But why?
Exports are on a roll. United States exports in February were up 55 per cent over February last year. China – Hong Kong was up 433 per cent.

Exports accounted for almost 25 per cent of all U.S. pork production. One out of four hogs are going somewhere else (Canadians take note – export pork is exempt from COOL. Do you really think no one will kill your hogs?)

Exports are saving our bacon. Prices would be even worse if not for foreign markets.

We expect exports to continue at record levels. The European price for hogs last Friday was 1.64 Euros a kilogram ($1.14 US per lb). Since January, Europe’s hog price has risen from 90 Euros per kilogram - an increase of $100 US plus per head.

With our hogs significantly lower priced than the Europeans, we have a huge price advantage in export markets (record February exports). This is lifting our prices and will continue to do so. The high price of grain in Europe (corn $9.00 US bushel) has eliminated 750,000 sows out of the European production system. Indeed, the European pork industry is expecting even higher prices.

Advantage Over the World

The US is gaining a huge cost of production advantage relative to the rest of the world. The US advantage is a corn price spread of $3.00 to $5.00 a bushel and has never been greater. The relative competitiveness of the U.S. industry coupled with a weak U.S. dollar is allowing our pork marketers to pound into every conceivable export market. We do not believe the marketplace has fully realized this competitive advantage.

There has never been such a scenario that could so radically increase our prices. Prices can accelerate beyond comprehension fueled by massive global export demand and, for the first time, not by a large decrease in hog numbers.

In our opinion, our industry is liquidating sows. At the same time, poultry and beef supply will decline. This will not only increase exports but domestic demand.

Crazy? Maybe Are we too bullish? We obviously don’t think so. The corn ethanol insanity has pushed grain prices to record levels. The global liquidation of livestock will leave a smaller supply of meat for increasing world demand. The only way to ration is higher prices. Already, Europeans have double our pork price but still have twice our per capita pork consumption. High grain prices have already made feedlot cattle very expensive to produce. Our feed conversion rate, at half that of cattle, is our advantage. In Europe, beef consumption is low, as domestically produced beef is very expensive. High cattle prices have helped lead to higher pork consumption as the red meat alternative.

Demand Increase

In the end, we expect demand for pork globally and domestically to continue to increase. Over the last 5 years, there has been an extra 30 million hogs produced per year every year. That trend is in reverse. We will have fewer hogs produced in the world over the next few months. Demand will push prices to levels we cannot comprehend. Remember, 46 per cent of all meat consumed in the world is pork. Despite our current economic plight, we should not lose sight that we are producing the world’s number one meat.

5m Editor