US July exports totalled 169,549 metric tons valued at $480.06 US million – an increase of 16 per cent in volume and 24 per cent in value. This pushed the 2011 total to 1.25 million metric tons valued at $3.3 billion – increases of 14 per cent and 20 per cent, respectively, over last year.

You need to look no further than the export surge to see why US market hogs were $40 per head higher in July than last year. July pork exports were 28.7 per cent of US production, last year in July exports accounted for 23.8 per cent of total production – a five per cent increase with US total pork production basically the same year-over-year. The increase in exports reflects global pork demand while at the same time, the increase in exports cut US domestic pork supply. Bottom line: the export demand increase and lower domestic supply lead to $40 per head jump with static total pork production. Good news with corn at $7 per bushel.

We have over the last year talked of this scenario of flat US pork production, constant US domestic demand with strong global pork demand, says Mr Long. He believed it was the scenario for $1.00 lean hogs this summer, says Mr Long. Now what about the future?

As he looks at 2012, he sees little change in US pork production – maybe one per cent difference either way. US domestic demand will be relatively constant. American consumers in general have the disposable income to purchase all the meat they want. One major plus could be lower chicken and beef supply in 2012, leading both being more expensive. This could help pork cut-outs and hog market prices.

Strong pork exports are needed to keep hog prices high. Exports depend on each individual country's needs and where they have buying options. The following countries Genesus does business with and its first-hand knowledge from being on the ground that Mr Long makes the following observations.

Japan

US pork exports to Japan are at a record pace, up 14 per cent year to date at 1.1 billion. A few weeks ago, Genesus was told by Japanese hog producers they were receiving almost US$3 per lb. live weight. Most, if not all, Japan's feed needs are imported. The tsunami has cut some production, and we do not expect increased Japanese domestic supply. There is little reason to believe Japans pork exports will be lower in the next 12 months. The cheapest place for Japan to buy pork and that meets their health regulations are USA-Canada.

South Korea

Last November, Genesus predicted strong exports to South Korea after the company met with South Korean producers and understood the devastation of their foot and mouth disease. US pork exports to South Korea are triple year-to-date at $343.4 million. Market hog prices in South Korea are around US$2.50 per lb. live weight. Price is always a reflection of supply and demand. From what we can discern, South Koreans swine production will not recover in any major degree before the summer of 2012, says Mr Long. Consequently, he expects US pork exports there to stay strong to then and beyond.

Mexico

Mexican exports have been steady in value at US$561 million in the year to date. The recent decline of retaliatory duties because of US trucking regulations should be positive for enhanced US pork sales. Mexican hog producers are currently receiving approximately $40 per head more than US producers. With the drop in duties, US pork will become more competitive. Genesus sees no sign of Mexico hog production increase as high feed prices, tight credit and fear of US pork imports keeps market enthusiasm restrained.

China

Last week, China hog prices hit US$1.75 per lb. live weight! There is demand and obviously supply issues. US exports to China are $244 million for the year to date. Mr Long expects this pace will increase over the next months. Disease, small herd liquidation and high feed prices are factors that will keep supply low for several months.

Russia

The Russia government released swine inventory recently. Despite live weight hogs at US$1.35 per lb., the swine inventory did not increase over last year. Russia will continue to import large amounts of pork mostly from EU and some from Brazil. Whatever goes to Russia is not in other world markets competing with North America's pork.

European Union

EU has twice the swine production of USA-Canada. Europe's hog industry is in a degree of financial crisis. High feed prices and low margin is leading to decreased supply. Europe's pork supply for export is decreasing.

Brazil

Brazil is a major pork exporter. Brazil's market hogs are 56.26 US cents per lb. Producers are losing money. When you are losing money, you do not expand. Brazil's export supply will not be increasing in the next while, says Mr Long.

Summary – next 12 months

US–Canada swine production should be steady. US domestic pork demand should be steady with upside potential.

Japan, South Korea, Mexico and Russia are showing no signs of diminishing pork imports. US–Canada has supply, price and health. EU and Brazil, the two other major pork-exporting blocks, have decreasing supply and Brazil has export health issues. Genesus expects US hog prices will reflect the increase in global pork needs. Consequently, it expects US prices to track 10 per cent higher year-over-year.