Wednesday, May 20, 2009
The Pork Market: Thumbs Up Or Thumbs Down?
Prepare yourself for USDA’s latest message to the pork industry: “Hog prices are expected to recover in June.” When you are finished with the euphoric celebratory dancing and the high fives with your spouse, let’s pull ourselves together, restore the decorum at home, and ask, “Recover from what?”The latest Livestock Outlook from USDA’s Economics Research Service teases producers a bit with the headline, and begins by saying, “USDA revised second-quarter hog prices downward, to reflect price weakness in April and negative effects of H1N1 flu virus in May. June prices are expected to recover from May lows.” Recovery is a good thing, but USDA is not projecting a return to the profitability of recent memory.
The weaker demand for pork, resulting from the H1N1 flu virus took about $5 per cwt from the lean hog market. US consumers and foreign demand withered from the flu outbreak. Domestic buyers were cautious and foreign governments backed away from imports on the disease concerns. USDA believes foreign and domestic consumer confidence will increase as reports of the disease decrease. ERS economists think prices of US pork and hogs will adjust upward as demand returns to normal and seasonal product flows are restored.
For the first three months of the year demand was healthy, weighing in at 1.03 billion pounds, 72 million under 2008, but 30% ahead of 2007. The shortfall this year resulted from a fading demand from China, since it has moved beyond a domestic shortfall and will increase its own production. Economists believe China will increase its pork industry by 6% this year, with a 17% drop in pork imports. For the second quarter of the year USDA believes exports will remain steady with the first quarter at 950 million pounds. Ironically, the export projection remains steady, despite great volatility in purchases among importing nations.
A significant dynamic in the US pork industry is the fading involvement of Canada. Compared to last year:
• Live swine imports from Canada are down 40%
• Slaughter swine imports are down 67%
• Finishing animal imports are down 28%.
This drop is attributed to the contraction of the Canadian hog industry due to lower profitability, and the marketing uncertainties due to the Country of Origin Labeling program.
In addition to the live hogs southbound from Canada, pork cuts are not flowing into the US as rapidly as last year by a 5.5% margin. Low quality pork from Mexico is not being demanded by immigrants in US cities, and high quality pork from Denmark is not being sought because of the recessionary economy.
Meats that compete with pork present a rather mixed bag:
1) Broiler meat will rise 1.6% in 2010 compared to the current year as expansion is restricted because of high feed costs. Weights will remain steady, but the number of birds slaughtered will increase.
2) Turkey production will be up 2% in 2010, after falling in 2009. Higher prices will be an incentive for increased production. However, most of the increased production will be exported, and much of it to Mexico.
3) Retail beef prices have increased in 2009 over 2008 by 4%, indicating that grocery demand is steadier than restaurant demand. Cattle feeders have recently seen margins that are closer to breakeven than any time since 2007. That is a result in lower prices for both feeder calves and feed, but USDA does not expect positive margins to last beyond the summer. The impact of H1N1 virus was difficult to analyze on the cattle industry, since two opposite marketing forces may have offset each other.
Summary:
Pork demand suffered from the H1N1 flu virus, wrongly named the swine flu. As a result both domestic and foreign consumers reduced their consumption of US pork, and $5 per cwt was lost on market hogs. As reports of the flu decline, demand is expected to rise for US pork. The export market for the second quarter is expected to parallel the first quarter. In other meats, both poultry and turkey production are expected to show marginal growth into 2010, and the beef market will see some brief profitability for cattle feeders as the result of lower input costs.
Posted by Stu Ellis on 05/20 at 01:17 AM | Permalink
Comments
Posted by: John Croft at May 22, 2009 1:01PM
Stu,
Excellent information from many states and sources. Your expertise, contacts and organization are a real asset to Illinois producers. And, for the U of I, your work is the best source for getting out new information. I hope they recognize the value you add.
For your consideration, the name for your Friday blog would better convey what you do if it didn’t just say “Extension Update.” The addition of the word “Extension” often does not seem appropriate for the material. Although sources may have an Extension responsibility what you are reporting is not the result of any work of Extension. It is University research and the communication of the knowledge gained from it.
Here’s an idea for future blogs. What are the areas of research that each department is focusing on now?
From Extension, what has Extension leadership written/published/accomplished?
What is Extension leadership doing to address the poorly written Illinois Extension law? A third-party source asked for a clarification from the U of I Legal Division and found they recommended limiting county board contributions to an amount based on population, not what the part B of the law that is poorly written and intends to allow county boards to levy up to the amount approved by voters in a referendum.
Another question, what is Extension doing to reduce the cost of Extension Educators in stand-alone “centers” that are largely unoccupied, and what is the cost of maintaining each regional office and each Extension Center? Should Center Educators be housed in county offices to reduce the cost? Should the function of reginal offices be evaluated? Should taxpayers look at the costs associated with all the regional and center offices and what they might better accomplish with a streamlined support staff in Urbana instead of regional offices?
The time is “now” to look at ways taxpayers can get more for their money.