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December 19, 2011
If I had to pick one word to describe the pork industry in 2011 – it would be "exports"! While a lot of other words come to mind, exports have been as huge this year as they were in 2008, when record exports simultaneously bailed the industry out of a porcine circovirus vaccine-driven supply glut and an ethanol-driven cost increase (Figure 1).
The Livestock Marketing Information Center’s forecast for 2011 pork exports currently stands at 5.022 billion pounds, carcass weight equivalent. That would be a 19% increase from last year and set a new annual record by over 350 million pounds. The 19% increase pales in comparison to 2008’s 49% growth, but we must realize that large percentage increases become less and less likely as the absolute level of exports grow. In fact, the 19% figure is larger than I ever expect to see again.
What is more shocking is that the 5.022 billion pounds forecast could be low, given the performance of U.S. exports in September and October (Figure 2). As of October, U.S. exports stand at 4.195 billion pounds, carcass weight equivalent. Looking back to last year, pork exports in November and December 2010 totaled 806.9 million pounds, so duplicating those levels would put us right at the 5.022-billion-pound level. But September and October shipments this year totaled 9.242 billion pounds. Duplicating those sales would put the 2011 total firmly above 5.1 billion pounds, which is just over 22% of currently projected pork production for 2011.
Figure 2 also demonstrates the role that China/Hong Kong have played in U.S. markets this year. Through October, the combination of those destinations ranked them as the third largest U.S. pork export market, behind only Japan and Mexico. We really must combine Hong Kong and China because of shipments from Hong Kong into mainland China.
That is the good news. The bad news is that there is mounting anecdotal evidence that Chinese buyers may be backing away from U.S. markets as domestic Chinese pork prices fall. Last week’s Iowa-Southern Minnesota direct hog prices were $80.27/cwt., $3.23/cwt. or 3.9% lower than one week earlier. The cutout value, though, gained slightly to close the week above $90/cwt., so packer margins are strong.
Retail Prices Hold Strong
Weaker hog prices should be no surprise to anyone in early December. Last week’s estimated 2.333 million head marked the 10th straight non-holiday week with 2.3 million head or more harvested. As I’ve pointed out before, it is not demand that fails us in the fall, it is simply the fact that more and bigger hogs come to market and the resulting pork supply overwhelms the level that we can move at steady or higher prices.
So why are retail prices still near record highs? Because of very natural price transmission time lags. November’s average retail pork price of $3.511/retail pound was up slightly from October’s $3.468/lb., but was 5.8% higher than the price of last year (Figure 3).
The November price reflects supply and demand conditions over the past six to 12 months and actually represents a delayed “passing along” by retailers of record high cutout values last summer. I think these retail pork price increases will slow down or even disappear this coming year as cutout values stabilize and retail margins get back to more normal levels.
The time lags for higher retail prices in beef have been much shorter, due in part to there being much less processing of beef cuts. Beef cutout values began hitting record-highs (save for that two-month spike in the fall of 2003) in early 2011. Retailers have steadily pushed selling prices higher this year with Choice beef breaking the $5/lb. level in November and setting another record. All-Fresh beef also hit a record high of $4.504/lb. in November.
Chicken prices remained near $1.80/lb. in November, only 2% higher than a year ago. Aggressive reductions in output have yet to move chicken breast prices – a major portion of the retail composite price – significantly higher.
Merry Christmas Wishes
As this is the last Weekly Preview prior to Christmas, please accept our best wishes for a Merry Christmas holiday for you and yours! We get so busy with shopping and parties and programs and travel this time of year – and the Meyer family will partake in all of those – that sometimes we don’t stop and remember the person we celebrate. Pause a bit this week and weekend to contemplate the baby and man named Jesus and the impact that His single life has had on mankind and can have on you personally. If you don’t know much about Him, give me a call. I’d be honored to tell you about such a friend.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: [email protected]
Partners for Production Agriculture
Steve Meyer joins Kerns and Associates, Ames, Iowa. As Kerns team member, Meyer will be speaking, developing and delivering economic data and analyses, and working with our clients to provide critical perspectives as they benchmark and drive risk management decisions.
Previously, Meyer served as vice president of Pork Analysis for EMI. Meyer conducted ongoing analysis of hog and pork markets. In a former role, as president of Paragon, he also monitored and analyzed cattle, beef and poultry markets to meet the needs of his diverse set of clients. He served for 12 years as an author of The Daily Livestock Report sponsored by CME Group, an e-newsletter whose circulation grew steadily following its introduction in 2003. In addition, he writes a feature article for National Hog Farmer’s NHF Daily e-letter that focuses on economic issues in North America’s swine/pork sector.
Prior to founding Paragon Economics, Meyer served as director of Economics for the National Pork Producers Council and National Pork Board from 1993-2002. In that capacity, he provided economic counsel to producers and NPPC/NPB staff and coordinated staff and consultants’ activities regarding meat industry production and price forecasts and the economic impact of pork production and processing. He also administered NPPC/NPB programs dealing with marketing and pricing systems, industry structure, coordination and competitiveness. Since leaving the NPB staff, Meyer has served as the organizations’ consulting economist. In addition, he spent three years as an assistant professor in the agriculture economics department at the University of Missouri.
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