April 9, 2008

 

Oversupply poses challenge for US pork industry
 

 

Pork stocks in the US are piling up, eating away at profitability due to rising feed costs and a demand that is unable to clear stocks away quickly.

 

The government has announced that US hog herd is 11 percent larger than last year, and processors have increased total slaughter by 10 percent from last year but are still unable to keep pace with the over-abundant pork supply.

 

US hog producers had increased herd population in 2007, eyeing on rising pork prices and increasing pork exports, but the move has since backfired, and corn prices has peaked US$6 per bushel.

 

The US hog industry is losing about US$17 million or US$30-50 per head a day due to soaring corn futures prices, according to Farha Aslam, an analyst with Stephens Inc.

 

It will take at least two or three quarters to work through present supplies, which would pressurise pork prices, said Jim Robb, director for the Livestock Marketing Information Centre in Lakewood, Colorado.

 

Aslam said a decrease in sow production is required but the process is hindered, as sow-processing plants are already in full capacity.

 

There is a limited market for sow meat and processors could be proceeding cautiously in order not to pressurise pork prices any further, said Steve Kay, publisher of Cattle Buyers Weekly.

 

Aslam suggested trimming herd size by cutting down 5 pounds of a hog's average weight, which will remove 8,000 head or 2 percent from the daily slaughter. The method would allow stabilise hog supplies considerably by mid 2009, but it could be a little slow for hog producers.

 

Poor margins are forcing hog producers into liquidation, and processors such as Tyson Foods would feel its impact by late next year, said Robb.

 

Some processors might place hog producers under contract in 2009 to ensure supply and to gain more control on pricing, said Aslam. Cargill is currently using the contract-farming model in Arkansas.

 

Smithfield Foods, the largest US pork processor, is still profiting from processing but they are incurring losses on from production, Robb said, adding that the company has recently announced a reduction in their hog population.

 

Industry experts are in a consensus that pork exports will continue to play a key role on how fast the excess pork is absorbed from the market.