March 9, 2010

Russia's return seen to boost US pork exports

US pork producers have won Russia back as a customer, a bullish development for hog prices and an indication government export projections are too low, according to analysts.

Russia last week agreed to remove restrictions on US pork after banning most shipments in December. Should Russia's buying rebound toward 2008 levels, the US will be shipping millions of additional pounds of pork overseas.

"We believe Russia lifting restrictions will increase pork exports to a larger than projected level," said Dan Marti, an economist with the USDA's Economic Research Service. "We'd think that with the ban being lifted, we would return to historical averages. But the magnitude cannot be determined."

Currently, the USDA estimates US pork exports will total 4.5 billion pounds this year, up 8.4% from last year, according to the agency's World Agricultural Supply and Demand report last month.

The USDA is scheduled to release its next supply and demand report March 10. Marti declined to comment on whether the USDA would change its projection for 2010 US pork exports.

A return to 2008 levels for Russia's pork purchases may lift hog prices 50 cents to US$1 per hundred pounds, on a carcass basis, from current levels, said Chris Hurt, a livestock economist at Purdue University.

Expanding export markets such as Russia is crucial for US pork producers because domestic consumption is expected to decline, Hurt said.

Russia lifting import restrictions is an important step, because exports are really the name of the game to grow the pork business the next few years, Hurt said.

In terms of price impact, the Russia news is not dramatically bullish, but it is friendly, Hurt said.

In December, Russia restricted imports from 13 US pork plants, citing traces of banned antibiotics found in some meat.

Following negotiations between the two countries, the US agreed to develop a new veterinary certificate to ensure pork exports meet specific Russian microbiological and tetracycline-group antibiotic residue requirements. The USDA also developed an Export Verification (EV) programme for pork going to Russia to address specific product requirements.

"Our pork meets US and international standards, so we did not see the need for the EV programme," Don Butler, president of the National Pork Producers Council, said in a statement. "But the Russians wanted the programme, and we wanted to get back in the market."

The prospect for more demand from Russia helped boost CME Group lean hog futures last week, sending the market to its fourth consecutive weekly gain.