"What does more pork production but less available for U.S.
consumers mean? Pork exports grew by 68 percent in the first
half of the year and imports fell by 15 percent, meaning that
1.1 billion pounds less pork was available for domestic
consumers," said Chris Hurt.
"By the second quarter, U.S. pork
production was 9 percent higher, but U.S. consumers had 6
percent less pork available to consume."
It is all part of what he termed a "remarkable year" for the
U.S. pork industry. Saddled with extraordinary feed and energy
prices and producing 20 percent more pork in the first half of
the year, profits seemed a distant dream.
"But salvation has come in the form of international trade as
cheap U.S. pork, subsidized with producer losses, and the weak
dollar have made pork trade more important than exports are for
the corn market," he said.
Like corn exports' role in determining corn prices, the pork
trade has become the single most important factor in pork
prices. Comparisons of export percentages for corn and pork are
startling, he added.
"For the 2007-08 marketing year, corn exports represented 19
percent of total corn use," he said. "For 2008-09, current USDA
forecasts are for exports to represent only 16 percent.
"Pork exports, in contrast, are forecast by the USDA to
represent 23 percent of U.S. production in 2008 and 22 percent
The anticipated favorable pork trade and the potential for
declining U.S. pork production into 2009 provide a bullish tilt
on pork and live hog prices. Per capita supplies available for
U.S. consumers are expected to be down by 8 percent in the
current quarter and down 10 percent in the fourth quarter.
For all of 2008, per capita pork supplies available to U.S.
consumers will be down about 5 percent. Supplies will drop an
additional 2-3 percent in 2009, making the amount of pork
available to U.S. consumers relatively tight over the next 18
"While trade has been the salvation of the pork industry in
2008, it also presents vulnerabilities, as the U.S. industry has
become dependent on these trade impacts to continue," Hurt said.
"What might go wrong? The export surge has been led by China,
which in the past has had some unpredictable trade patterns. In
the first half of 2008, the increased pork shipments to China
and Hong Kong represented 50 percent of the increased pork
Hurt noted there are at least three concerns in regard to
First, China's internal pork production has been down due to
"blue-ear" disease and to this year's earthquake. Estimates are
that pork production has been down about 8-9 percent as a
"Pork price inflation was rapid in the winter and spring and
gave the Chinese government strong incentives to buy cheap U.S.
pork," he said.
"The second uncertainty might be called the 'Olympics
effect.' China had strong incentives to import a large amount of
pork in the months prior to the Olympics, not only to keep
consumer food price protest to a minimum, but also to have
sufficient availability for their Olympic guests. If so, their
pork purchases might be reduced in the post-Olympic period."
[to top of second column]
Finally, there is concern that this period of rapid purchases will
not last because China is attempting to restore its own production.
To the question of "Who will feed China?" the Chinese government has
generally responded, "We will feed ourselves."
"China has primarily had a policy of self-sufficiency in food
production in the last decade, with the exception of soybeans and
soy products," said Hurt. "The question of whether China is making a
fundamental shift away from self-sufficiency and toward some
dependency on imported pork could have profound implications for the
U.S. pork industry."
Russia provides another source of concern with regard to
continued strong pork trade. Russia accounted for 13 percent of the
increased pork exports in the first half of the year. Russia tends
to be a "value shopper," Hurt noted.
"They look for the lowest-priced source of animal protein," he
said. "As the price of U.S. pork rises, the attraction for Russia
will be reduced."
As there has never been this large an influence on pork price
from international trade, there is little historical experience for
evaluating the impact on hog prices. As a result, the futures market
rather than a computer model is used to forecast prices for 51-52
percent lean carcasses.
"Prices drop from their current low $60s into the very high $50s
into September," he said. "The final quarter of the year will
average in the mid-$50s, with recovery into the higher $50s for the
first quarter of 2009. The highest prices will be in the spring and
summer of 2009, with averages in the mid-$60s.
"Prices then drop seasonally into the higher $50s for the final
quarter of the year. This would provide 2008 price averages of about
$51.50, the highest yearly average since 2004. In
2009, all price records would fall, with an average in the low $60s
for the year and record-high prices for each quarter."
Can hog producers compete for high corn prices?
"Yes, if these hog price forecasts hold, then hog producers will
be able to pay about $6.25 per bushel for corn in 2009 and still
break even, compared with only $4 in calendar years 2007 and 2008,"
"But to get to this strong competitive position, three conditions
must occur: Pork producers must continue to reduce farrowings
somewhat; our foreign customers must continue to buy U.S. pork; and
crude oil prices need to stay under $140 per barrel in order to
compete with ethanol processors for corn."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental