October 1, 2004

 

 

US Pork Cutout Up Nearly 18% From Year Ago On Demand, Exports

 

The U.S. Department of Agriculture's pork carcass composite value, commonly called the pork cutout, continues to run well above a year ago despite record large hog slaughters, and the cutout during the last five days has averaged 17.6% above the same period a year ago.

 

Most of the price gains in the carcass composite value have come from three primal cuts - the loin, ham and shoulder butt.

 

Livestock and meat market analysts said strong demand domestically for pork as well as growth in exports have contributed to the higher prices for these cuts. Demand has also remained robust for pork bellies, which are used to produce bacon. Fresh belly prices over the last five days have been about steady with a year ago but well up from historic levels.

 

The domestic demand strength for pork this year has been driven by a combination of the popularity of low-carbohydrate diets along with higher wholesale beef and chicken prices compared with a year ago throughout most of the first seven months. In the last two months, beef and chicken breast prices have slipped and have been below the year-ago levels much of the time.

 

However, retail prices for beef and chicken, for the most part, have held above a year ago, due largely to the lag-time that exists in adjusting for changes in the wholesale markets. Uncertainly about supplies has also been a factor in the beef complex, sources said.

 

In the international markets, sales of U.S. pork have been running well ahead of a year ago and at a record-setting pace. According to the U.S. Meat Export Federation, sales volume for total pork, which includes the muscle cuts plus variety meats such as hearts and livers, for the first seven months of this year were up 32% from a year ago. The year-to-date volume for muscle cuts only was up 26%, compared with the same period a year ago.

 

Import bans imposed by many countries on U.S. and Canadian beef following one case of bovine spongiform encephalopathy, or mad-cow disease, in both countries in 2003, have contributed to more pork sales internationally.

 

Furthermore, outbreaks of highly pathogenic avian influenza in Asia and some human deaths there due to the bird flu have contributed to increased purchases of pork as consumers have reduced consumption of poultry.

 

Japan and Mexico were nearly tied for the lead in purchases of U.S. pork and pork variety meats, and combined they accounted for about two-thirds of the total. As of the end of July, Japan, still the largest customer for pork for the U.S., had purchased only 6% more this year compared with 2003. Mexico, on the other hand, has purchased 70% more to draw close to Japan's total. There were other countries that have shown huge percentage increases from a year ago as well.

 

Taiwan and Russia, for example, have more than doubled their 2003 purchases. Market analysts and industry sources said Russia is expected to be a significant buyer of U.S. pork throughout the balance of this year. The sources said and USMEF officials confirmed that Russian buyers are trying to buy additional pork. Some of the most sought-after items are variety meats, back fat, shoulder picnics, pork trimmings and hams.

 

USMEF officials said the level of buying activity will certainly be a great boost to the U.S. pork industry. But it is doubtful the 42,000 ton quota will be fulfilled, for at least two reasons. First, it is strongly rumored that some Russian companies may have managed to switch their allocated pork quota from U.S. origin to other countries, namely Brazil. Second, the U.S. pork industry will not be able to supply in sufficient volume to maximize this quota at this late stage in the year, even if Russia was to pay any price for the raw materials, USMEF said.

 

A pork packer source said, Russia is trying to fill its quota by the end of the year and buyers there are "looking for everything from fat to hams."

 

Industry sources also said U.S. meat packers and exporters are not as concerned about payment as they once were when selling to Russian accounts.

 

The economy has improved there, and there is more stability in the market place. Russian buyers are well known to U.S. exporters now, and sources said there is a better working relationship among the buyers and sellers.

 

"They have a lot of money - years back we (U.S.) had to worry about credit with Russia - not anymore," said a Midwest-based meat broker.