farmgate: The Pork Market: Thumbs Up Or Thumbs Down?
Prepare yourself for USDA’s latest message to the pork industry: “Hog prices are expected to recover in June.” When you are finished with the euphoric celebratory dancing and the high fives with your spouse, let’s pull ourselves together, restore the decorum at home, and ask, “Recover from what?”
The latest Livestock Outlook from USDA’s Economics Research Service teases producers a bit with the headline, and begins by saying, “USDA revised second-quarter hog prices downward, to reflect price weakness in April and negative effects of H1N1 flu virus in May. June prices are expected to recover from May lows.” Recovery is a good thing, but USDA is not projecting a return to the profitability of recent memory.
The weaker demand for pork, resulting from the H1N1 flu virus took about $5 per cwt from the lean hog market. US consumers and foreign demand withered from the flu outbreak. Domestic buyers were cautious and foreign governments backed away from imports on the disease concerns. USDA believes foreign and domestic consumer confidence will increase as reports of the disease decrease. ERS economists think prices of US pork and hogs will adjust upward as demand returns to normal and seasonal product flows are restored.
For the first three months of the year demand was healthy, weighing in at 1.03 billion pounds, 72 million under 2008, but 30% ahead of 2007. The shortfall this year resulted from a fading demand from China, since it has moved beyond a domestic shortfall and will increase its own production. Economists believe China will increase its pork industry by 6% this year, with a 17% drop in pork imports. For the second quarter of the year USDA believes exports will remain steady with the first quarter at 950 million pounds. Ironically, the export projection remains steady, despite great volatility in purchases among importing nations.
A significant dynamic in the US pork industry is the fading involvement of Canada. Compared to last year:
• Live swine imports from Canada are down 40%
• Slaughter swine imports are down 67%
• Finishing animal imports are down 28%.
This drop is attributed to the contraction of the Canadian hog industry due to lower profitability, and the marketing uncertainties due to the Country of Origin Labeling program.
In addition to the live hogs southbound from Canada, pork cuts are not flowing into the US as rapidly as last year by a 5.5% margin. Low quality pork from Mexico is not being demanded by immigrants in US cities, and high quality pork from Denmark is not being sought because of the recessionary economy.
Meats that compete with pork present a rather mixed bag:
1) Broiler meat will rise 1.6% in 2010 compared to the current year as expansion is restricted because of high feed costs. Weights will remain steady, but the number of birds slaughtered will increase.
2) Turkey production will be up 2% in 2010, after falling in 2009. Higher prices will be an incentive for increased production. However, most of the increased production will be exported, and much of it to Mexico.
3) Retail beef prices have increased in 2009 over 2008 by 4%, indicating that grocery demand is steadier than restaurant demand. Cattle feeders have recently seen margins that are closer to breakeven than any time since 2007. That is a result in lower prices for both feeder calves and feed, but USDA does not expect positive margins to last beyond the summer. The impact of H1N1 virus was difficult to analyze on the cattle industry, since two opposite marketing forces may have offset each other.
Summary:
Pork demand suffered from the H1N1 flu virus, wrongly named the swine flu. As a result both domestic and foreign consumers reduced their consumption of US pork, and $5 per cwt was lost on market hogs. As reports of the flu decline, demand is expected to rise for US pork. The export market for the second quarter is expected to parallel the first quarter. In other meats, both poultry and turkey production are expected to show marginal growth into 2010, and the beef market will see some brief profitability for cattle feeders as the result of lower input costs.
Posted by Stu Ellis on May 20, 2009 12:17 AM to farmgate