U.S Pork Exports Continue Record Pace. Why?
U.S. July Exports totaled 169,549 metric tons valued at $480.06 US million – an increase of 16 percent in volume and 24 percent in value. This pushed the 2011 total to 1.25 million metric tons valued at 3.3 billion increases of 14 per cent and 20 per cent, respectively, over last year. You need to look no further than the export surge to see why U.S. market hogs were $40. Per head higher in July compared to last year. July pork exports were 28.7% of U.S. production, last year in July exports accounted for 23.8% of total production (A 5% increase). With U.S. total pork production basically the same year over year. The increase in exports reflects global pork demand while at the same time the increase in exports cut U.S. domestic pork supply. Bottom line, the export demand increase and lower domestic supply lead to $40. per head jump with static total pork production. Good news with corn at $7 per bushel. We have over the last year talked of this scenario of Flat U.S. pork production, constant U.S. domestic demand with strong global pork demand. We believed it was the scenario for $1.00 lean hogs this summer. Now what about the future? As we look at 2012 we see little change in U.S. pork production maybe 1% difference either way. U.S. domestic demand will be relatively constant. American consumers in general have all the disposal income to purchase all the meat they want. One major plus could be lower chicken and beef supply in 2012 leading both being more expensive. This could help pork cut-outs and hog market prices. Strong pork exports are needed to keep hog prices high. Exports depend on each individual country’s needs and where they have buying options. The following countries we do business with and its firsthand knowledge from being on the ground that we make our following observations. Japan U.S. pork exports to Japan are at a record pace, up 14% year to date at 1.1 billion. A few weeks ago we were told by Japanese hog producers they were receiving almost $3. US per lb. live weight. Most if not all Japans feed needs are imported, the tsunami has cut some production, and we do not expect increased Japanese domestic supply. There is little reason to believe Japans pork exports will be lower in the next 12 months. The cheapest place for Japan to buy pork and that meets their health regulations are USA-CANADA. South Korea Last November we predicted strong exports to South Korea after we met with South Korean producers and understanding the devastation of their foot and mouth disease. U.S. pork exports to South Korea are triple YTD at $343.4 million. Market hog prices in South Korea are around $2.50 U.S. a lb. live weight. Price is always a reflection of supply and demand. From what we can discern South Koreans swine production will not recover in any major degree before the summer of 2012. Consequently we expect U.S. pork exports there to stay strong to then and beyond. Mexico Mexican exports have been steady in value at $561 million YTD. The recent decline of retaliatory duties because of U.S. trucking regulations should be positive for enhanced US pork sales. Mexican hog producers are currently receiving approximately $40 per head more than U.S. producers. With the drop in duties U.S. pork will become more competitive. We see no sign of Mexico hog production increase as high feed prices, tight credit and fear of U.S. pork imports keeps market enthusiasm restrained. China Last week China hog prices hit $1.75 U.S. live weight a lb.! There is demand and obviously supply issues. U.S. exports to China are $244 million YTD. We expect this pace will increase over the next months. Disease, small herd liquidation, and high feed prices are factors that will keep supply low for several months. Russia The Russia government released swine inventory recently. Despite live weight hogs at $1.35 U.S. a lb. The swine inventory did not increase over last year. Russia will continue to import large amounts of pork mostly from E.U and some from Brazil. Whatever goes to Russia is not in other world markets competing with North America’s pork. European Union E.U has twice the swine production of USA-Canada. Europe’s hog industry is in a degree of financial crisis. High feed prices and low margin is leading to decreased supply. Europe’s pork supply for export is decreasing. Brazil Brazil is a major pork exporter. Brazil’s market hogs are 56.26 cents U.S. a lb. Producers are losing money. When you are losing money you don’t expand. Brazil’s export supply won’t be increasing in the next while.Summary – Next 12 months
U.S – Canada swine production should be steady. U.S domestic pork demand should be steady with upside potential. U.S – Canada swine production should be steady. U.S domestic pork demand should be steady with upside potential. Japan, South Korea, Mexico and Russia are showing no signs of diminishing pork imports. U.S – Canada has supply, price and health. E.U and Brazil, the two other major pork exporting blocks have decreasing supply and Brazil has export health issues. We expect U.S hog prices will reflect the increase in global pork needs. Consequently we expect U.S prices to track 10% higher year over year.
Categorised in: Pork Commentary
This post was written by Genesus