April 8, 2011
US hog prices advance on tough overseas demand
Both farm level and wholesale hog and pork prices in the US averaged around US$20 per hundredweight (cwt) higher than last year in the first quarter of 2011 fuelled by a robust export market for pork and some improvement in local demand.
Higher prices were recorded in spite of larger pork supplies.
The estimated commercial hog slaughter was near year-ago levels, while pork production was up almost 2% because the average hog carcass weights increased from 204 to 208 pounds.
Interestingly, higher weights occurred in spite of an 85% increase in corn prices compared to the first quarter of last year.
The USDA is forecasting about a 7% increase in pork exports for the first quarter of 2011 and more than a 10% increase for the year. Actual pork export numbers for January (the latest month for which data are available) posted a 17% increase.
Leading US export markets for pork include Japan, with 30% of the market, followed by Mexico at 24%, Canada with 10% and South Korea about 5%.
In January, pork exports to Japan were up almost 23% from last year. Pork exports to Mexico were unchanged, Canada down 5% and South Korea up a whopping 144%. South Korea's worst foot and mouth disease outbreak in history resulted in the depopulation of about 30% of the 10 million head swine herd. Pork is the leading meat consumed in Korea, so more pork imports were required to offset the decline in domestic production.
The catastrophic earthquake, tsunami and nuclear disaster in Japan have caused uncertainty in the US hog market. After the tsunami hit Japan on March 11, June lean hog futures prices declined about US$7/cwt through the subsequent four trading days. However, since then, hog futures prices have increased to near the contract highs recorded in mid- to late-February.
About 19% of Japan's swine herd resided in the northern geographic area hardest hit by the earthquake and tsunami. It is not known what impact the devastation will have on Japan's pork production, consumption and imports.
Two other countries also recorded triple-digit percentage gains in January US pork exports. Exports to China increased to almost 26 million pounds from less than one million pounds last year. Pork exports to Russia were more than six million pounds in January, compared with just 81,000 pounds last year.
Another indication of the strong pork export market is the increase in value of by-products, such as lard, which receive premium prices in foreign markets. The hog by-product value on a live animal basis has risen to about US$5.20/cwt, compared with US$4.50 last year and a five-year average of about US$3.60 for this time of year.
Some driving factors that have led to the increase in pork exports are that the economies in other parts of the world, Southeast Asia for example, are recovering faster than the US economy. Also, the decreasing value of the US dollar relative to other currencies makes US pork quite competitive in world markets.
On March 25, the USDA's National Agricultural Statistics Service released its quarterly hogs and pigs report. Most hog inventory categories on March 1 recorded less than a 1% increase compared with year-earlier numbers.
All hogs and pigs on March 1, at 63.96 million head, were up 0.6% from 2010. About 5.79 million were kept for breeding purposes, which was up 0.5%.
Market hogs totalled about 58.2 million head, which was an increase of just 0.6% from a year ago. However, market hogs were down almost 5% from the numbers recorded on March 1, 2009.
Looking ahead, farrowing intentions for March through May and June through August were down 2.6%. If these projected farrowings materialise, along with expanding exports, prices should be supported in the second half of the year. However, keep in mind that fourth-quarter production usually is at a seasonal peak, with corresponding seasonally lower prices.
Midsummer lean hog futures contracts are trading at more than US$10 cwt higher than late-fall contracts, which reflects that seasonal price pattern.
