September 20, 2011

US hog prices show steady decline

US hog prices have decreased steadily since attaining a record-high of US$79.33 per cwt in early August following a higher fall-quarter forecast of US hog numbers, says the USDA's Economic Research Service.

Simultaneously, cash prices of corn in Iowa, the largest hog producing state in the US, have traded in the high US$6 to low US$7 per bushel range since mid-July.

Concurrent with increasing costs of major feed inputs, declining output prices spell narrower spreads between the cost of feed and the selling price of finished hogs. While producers' estimated quarterly feed cost spreads remain positive through 2012-calculated with USDA forecast prices of corn, soybean meal and hogs-spreads will narrow for the fourth quarter of 2011, and spreads for the first three quarters of 2012 are below those of 2011.

US hog producers are likely to respond to lower feeding spreads by reducing the weights at which they market hogs for slaughter. However, packer discounts for underweight animals are likely to limit producer incentives to reduce slaughter weights too sharply. USDA is reflecting expectations for narrowing feed spreads in lower on-year estimated average dressed weights for the second half of 2011 and into 2012.

Third-quarter commercial pork production is expected to be almost 5.5 billion pounds, approximately 1% higher than a year ago. Fourth-quarter pork production is anticipated to be 6.1 billion pounds, about 1% below the same period last year. Prices for live equivalent 51% to 52% hogs are expected to average US$70 to US$71 per cwt in the third quarter, about 17% above a year ago. Fourth-quarter prices are expected to be US$60 to US$64 per cwt, almost 24% above the same period last year.

In July, US pork exports were up sharply, propelled primarily by shipments to Asia-China and South Korea, in particular. July exports totalled 386 million pounds, almost 18% higher than a year ago. Evidence of China's rumoured purchases of US pork products finally was reflected in US export statistics: China purchased about 44 million pounds of US pork products in July, more than doubled the July 2010 volume. US pork product imports appear to be part of an effort by the Government of China to supplement domestic pork supplies in order to reduce food price inflation.

Lower-than-expected pork production this year, due to disease outbreaks in 2010 and continued industry exit by small backyard producers, comes at a time when strong economic growth and increasing disposable income have increased pork demand and pork prices. US exports to China are likely to remain on-year higher for the rest of 2011.

Third-quarter US pork exports are expected to be 1.2 billion pounds, more than 26% above a year ago. Fourth-quarter exports are forecast at 1.3 billion pounds, an increase of more than 13% over fourth quarter 2010. Total exports this year are expected to reach 4.95 billion pounds.

In 2012, total exports are forecast at 5.135 billion pounds, an increase of almost 4%. The growth rate of 2012 exports is expected to be moderate compared with 2011 as Asian pork supplies rebound from production declines due to disease problems.