U.S. Exports of Animal Protein: Pork Holds Its Own in Volume and Value

USDA’s Economic Research Service distributed its Livestock, Dairy and Poultry Outlook on Monday this week, with reports on showing a better outlook for pork exports than the industry expected.

The overall report by Kim Ha stated that despite accelerated growth in pork production in 2018, total cold stocks of pork have remained at or below 3- and 5-year averages so far this year.

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“Lower pork 2018 prices have encouraged domestic and foreign consumers to demand increased quantities of U.S. pork,” Ha wrote, and that’s good news for producers. Despite the Chinese tariffs, the U.S. industry is finding homes for the large supplies of U.S. pigs.

Still, large supplies will keep hog prices significantly below year-earlier levels through the first half of 2019, Ha wrote.

“In relative terms, producers are dealing with a large (intended to be) permanent increase in national production, coupled with continually rising productivity and countered with temporarily reduced slaughter capacity due to catastrophic weather on the East coast,” says Dennis DiPietre, owner of Knowledge Ventures LLC.

Ha reports that July pork exports were almost 9% higher than a year earlier.

“Third-quarter pork exports are expected to be 1.3 billion pounds, almost 6 percent higher than in the same period a year ago,” Ha wrote.

Mildred Haley with USDA ERS prepared the hogs/pigs segment of the report. She reinforces the growth of the industry in 2018.

“From the beginning of 2018 through the end of July, the U.S pork industry has produced 3.8 percent more pork compared with the same period last year,” Haley writes. “Despite accelerated rates of pork production, it is notable that 2018 pork stocks have remained relatively current. The figure below shows monthly USDA\NASS data for pork cold stocks indicating that since the beginning of the year, pork stocks have maintained levels about equal to, or below, their 3- and 5-year averages.

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DiPietre agrees that the export market is holding up better than expected.

“Coupled with that, the belly primal seems to have put in its low for now and has buoyed the carcass price out of the recent shocking lows with some upside glimmer,” DiPietre says.

The increases in pork production have largely been consumed either domestically or in foreign markets, Haley points out. She writes that “in the first 7 months of 2018—the latest time for which a full set of data is available—per capita disappearance was about 36.9 pounds. In 2017, over the same 7-month period, domestic per capita disappearance was about 35.9 pounds.

“On the export side, through July, 3.5 billion pounds of pork have been exported, an increase of 6.5% over the same period last year. This volume constitutes 23.1% of commercial pork production, compared with 22.5% over the same period in 2017,” Haley writes.

“More pork on the market this year has driven pork prices lower, likely inducing consumers—both domestic and foreign—to demand larger quantities of pork. The figure below shows the wholesale pork carcass cutout for January-July 2018 and 2017. So far in 2018, this composite wholesale pork price has averaged $75.66 per cwt, more than12 percent below the same period last year,” Haley writes.

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Lower Prices in Early to Mid-2019 Anticipated
Larger slaughter numbers will continue to weigh on hog prices from now through the first half of 2019, Haley predicts.

“Third-quarter prices of live equivalent 51-52 percent lean hogs will likely average $42-$43 per cwt, while fourth-quarter average prices are expected to decline to $31-$33 per cwt,” Haley writes. “First-quarter hog prices are anticipated to average $36-$38 per cwt, almost 25 percent lower than a year earlier.”

She feels second-quarter prices are expected to average $41-$45 per cwt, about 10% below a year earlier. The industry will know more when USDA\NASS releases results from its producer survey in a few weeks, and when the Quarterly Hogs and Pigs report is released close to the same time.

July Exports Exceed Year-Earlier Levels Despite Tariffs
Haley reports that pork exports in July were 425 million pounds, almost 9% more than a year earlier. Total exports were stronger despite lower shipments to Mexico and China, both of which have imposed retaliatory tariffs on U.S pork products. July exports were supported by strong shipments to South Korea, Japan, the Philippines, Australia, and Colombia. July exports to the 10 largest export destinations are summarized below.

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Third-quarter pork exports are expected to total 1.3 billion pounds, almost 6% above exports a year ago, according to Haley.

“Exports for 2018 are anticipated to total just shy of 6 billion pounds, an increase over 2017 of more than 6%. Next year, 2019 exports are expected to be 6.1 billion pounds, an increase of about 2% over this year’s forecast.

That’s positive news for producers, in an environment when there isn’t very much positive news. However, the misfortune of African Swine Fever in other countries could potentially increase demand for U.S. pork even, more, provided the U.S. is successful in keeping the virus out of the country.

“Never underestimate the savvy of viruses and other microorganisms to defy conventional wisdom and crop up in places to which they were never supposed to gain access,” DiPietre says. “Lots of good educational material has emerged in the last several weeks for industry folks that travel abroad. If you are planning a trip abroad, please take the time to get educated and cooperate with Customs and Border control."

The industry is preparing for the worst by making sure U.S. producers take additional precautions to keep ASF out of the country. It would be a completely different scenario if the virus were to enter the U.S.

“Let’s hope we have seen the low for the year, even if profits are many months away,” DiPietre says.