CME: Pork Export Demand Exceptionally Strong in Q1

by 5m Editor
1 June 2011, at 9:16am

US - Hog futures have been looking for a bottom since early May and there is some hope among producers that the slide in prices may be coming to an end, Steve Meyer and Len Steiner report.

The nearby June contract closed on Friday at $88.925/cwt, $1.12/cwt higher than the previous day but still some $16/cwt. or 15 per cent lower than where it was in early April. Those that hold a more bullish view of the market will likely point to expected demand improvements going into the summer months. Grilling demand has been very slow to develop this spring due to cool and wet weather patterns in heavily populated areas along the US East Coast and the Midwest. However, weather during Memorial Day weekend was for the most part very good and the hope is that this helped more product through retail outlets. There are also indications that export pork demand could be even better due to a combination of a weaker US dollar, better demand from Asian markets and surging feed costs in a number of large pork producing countries.

Export demand was exceptionally strong in Q1, driven in part by shipments to S. Korea. The FMD situation in Korea will remain a problem there for sometime and this should support demand for US pork. Moreover, a number of countries are facing significant price inflation for domestically produced protein and US pork continues to be competitively prices, especially when considering the currency impact. The US dollar bears watching. It strengthened considerably since early May on EU debt fears. However, if the issue in the EU finds some resolution and as the US own debt problems percolate, we could see additional downward pressure on the US dollar, and this remains long term bullish for US proteins in general, and particularly pork.

Those that hold a more bearish view of the market will likely point to the supply side of the equation. US hog slaughter has increased in recent days bringing more product to market. Also, there some speculation that producers are a bit behind in their marketings. Hog carcass weights remain very heavy and this is bringing additional pounds to market.

For the week ending 28 May US hog slaughter was 2.031 million head, 5 per cent higher than a year ago. Hog dressed carcass weights were pegged at 207 pounds per carcass, 2 per cent higher than a year ago. In total, pork production for the week ending 28 May was 420.7 million pounds, 7 per cent higher than a year ago. High feed costs could force producers to try and accelerate their marketings. This would likely bring more balance to the market down the road but, in the short term, would increase the tonnage coming through and negatively impact prices. The full summary of prices and supplies for last week can be seen below.