October 27, 2006

 

US pork producers enjoying profits amidst record production 

 

 

Times have rarely been better for US pork producers.

 

US pork production has defied the laws of economics in recent months. Traditionally, higher production meant lower profits for producers. But as demand for US pork has kept pace with production, in fact, even exceeding it, prices have been tugged along, ensuring profits even in the midst of record production.

 

In part, this higher demand stems from higher export while more efficient production capabilities ensured higher profits.

 

Record after record have been broken in recent months as slaughter rates, exports and average live weights reached new highs.

 

Analysts are amazed that demand is capable of catching up with production given that current production levels are way above those seen in 1998, when the industry was in severe decline.

 

Current slaughter levels are 6.25 percent higher than levels in 1998 while carcass weights are 12.4 pounds higher. Pork production is up 12.5 percent while cash hog prices are 60 percent above 1998 levels. What could be better?

 

The increases were a result of the changes brought about by the severe decline in 1998 which ushered in the era of the vertically integrated sector, which enabled expanded processing capacity and growth in international markets.

 

The biggest factor is the fact that the industry's processing capacity exceeds hog supplies, said Chris Hurt, agricultural economist at Purdue University.

 

Closer coordination between producers and packers, along with contracts also ensured a smoother supply chain, a factor that felled the industry in 1998, Hurt said.

 

In fact, the market for 2006 is a world of difference from that in 1998, given that currently, a growing world economy contributes significantly to expanding export sales, Don Roose, president with US Commodities in West Des Moines, Iowa said.

 

Glenn Grimes, agricultural economist at the University of Missouri, revealed another impressive statistic- the US has gone from being a net importer importing 7.6 percent of production in 1987 to being a 9.56 percent net exporter in the first eight months of this year.

 

In 1986, the value of pork exports to producers was at US$1.97 per head, last year the figure was US$25.44. Exports have brought US pork producers almost US$7 billion in profits over the past 20 years, thanks to efforts by producer organisations which opened up international markets through free trade agreements.

 

Yearly US pork exports have doubled from about 540,000 tonnes in 1998 to 1.16 million tonnes last year, while the value of the sales more than doubled.

 

Total pork exports for 2006 is expected to reach 1.25 million tonnes for this year.