Thursday, April 30, 2009
Fundamental and Technical Dynamics Are At Work In The Hog And Cattle Markets.
The US pork industry has grown substantially over the past 23 years, but one dynamic, termed as “impressive” has been the growth in exports of US hogs and pork products. Today the pork industry is 27 million head larger than it would have been in 1986 without export demand from overseas customers hungry for US pork.Actually, the growth in the pork industry has been due, not only to outward bound pork, but to a substantial decline in imported pork products. That is the contention of livestock economists Glenn Grimes and Ron Plain at the University of Missouri. Their analysis indicates US exports were at 86 million pounds in 1986, but had reached 3.1 billion pounds by 2007. When comparing imports and exports, the economists say the US had a pork trade deficit of 1.036 billion pounds in 1986, but a positive trade balance of 2.169 billion pounds in 2007.
The export business contributed substantially to the value of pork, climbing from $1.97 in 1986 to $41.49 per head in 2008. That money ended up in the pocket of producers, say Grimes and Plain, who said pork promotion programs, funded by producers made it possible, as well as the US meat packing industry. However, they also attributed part of the growth to government efforts to liberalize trade, as well as the economic growth around the world pushing demand upward.
The economists said it is difficult to calculate how much credit should be given to any one of the three, however the Pork Check-off has invested $69 million over the past 23 years to promote exports. They said total income for all pork producers would be $12.2 billion attributable to pork exports.
Grimes and Plain say the pork industry has grown substantially without lowering prices. They said they assumed producers increased the herd enough to offset any price benefits from net export growth in years when both prices and exports grew.
Increases in the size of the swine herd have long been the subject of discussion, and recent calculations by ag economists Jeffrey Dorfman and Myung Park of the University of Georgia may have clarified the lengths of the hog and cattle marketing cycles. Using data about the size of hog and cattle herds for the last 140 years, the economists attribute part of the complexity to the biological lags in accumulating breeding stock as a limitation of producers being able to more quickly respond to markets. Their effort eliminates the economics of production and marketing, and focuses solely on the inventory levels to determine the length of the hog and cattle cycles and the growth rate of cattle inventories.
Their survey begins with 1866 data on livestock numbers and continues through 2009. They found 141,981 cycles in the cattle data, with a minimal chance there were three different repeating cycles. However, they found a 37% chance of four repeating cycles, a 52% chance of five repeating cycles, and an 11% chance for six repeating cycles. Their characterization of the cattle cycle was “a very complex dynamic process.” Ultimately, they identified the cattle market as having cycles with lengths of 4.5, 6, and 11 years.
The hog market is dominated by five different cycles, according to the Georgia economists. Those have lengths of 4.5 years, 5.4 years, 6.8 years, 10.2 years, and 13.3 years.
Dorfman and Park say a better understanding of the cycles could lead to better risk management and higher profitability for both producers and processors. Additionally, they acknowledge references to a single multi-year cycle, but say there are a number of smaller cycles that are actually at work in the cattle and hog inventory. Both have a short cycle of 4.5 years and an 11 year cycle.
Summary:
A significant dynamic in the US pork industry in the past 23 years is a substantial shift from imports to exports, which has allowed the swine herd to expand substantially without lowering producer prices. This marketing effort has been jointly accomplished by USDA, the meat packing industry, and the pork check-off.
Marketing of livestock is frequently dominated by cycles that indicate herd expansion and contraction, and using data from the past 140 years of livestock herd numbers, there are similarities in the short and long cycles for both hogs and cattle. The cycles may be due more to biological lags in the development of breeding stocks, instead of economic-driven issues.
Posted by Stu Ellis on 04/30 at 01:43 AM | Permalink