December 20, 2007

US pork demand moving larger-than-expected pork supplies

Larger-than- expected pork supplies are being marketed to domestic and foreign consumers, rather than accumulating as cold stocks, according to the US Department of Agriculture. Cold stocks as of October 31 state that pork shows only a small year-over-year increase of less than 2 percent. Most of the increase is due to higher ham stocks, which may be attributable, in part, to seasonal factors, as well as to lower sales to Mexico.

Estimated Federally Inspected weekly pork supplies for the 8 weeks up to December 1, which averaged about 8 percent higher than a year ago, appear to have pressured wholesale prices lower, but by less than in comparable periods in the recent past. The USDA Estimated Pork Carcass Cutout for October and November 2007 averaged almost 11 percent below the same period last year. The only other period in the recent past when October-November production increases were comparable to 2007 was in 1998, when a 10-percent increase in production was associated with a 31-percent drop in wholesale prices.

The fact that pork prices have not fallen as sharply as they did in 1998 is likely attributable, in part, to the contribution made by export markets in expanding demand for US pork. USDA forecasts fourth-quarter 2007 pork exports at 860 million pounds, almost triple the volume of exports in the same period 9 years ago. Thus, 2 months into the fourth quarter of 2007, it appears that robust demand factors are helping to move large volumes of pork through the supply chain to foreign and domestic consumers. Indeed, on the export side, attractive US pork prices and the low-valued US dollar are drawing significant quantities of US pork into foreign markets. And on the domestic side--which accounts for about 86 percent of annual pork disappearance--year-over-year higher wholesale beef and chicken prices are likely helping to market seasonally large supplies of pork to domestic consumers.