Total red meat supplies were down 1% from the previous month, but they are up 13% from a year ago, according to the March cold storage report, the most recent available (see attached graph). In addition, frozen poultry stocks were down from a month ago by about 3%, but up 13% from a year ago. On the pork side, total pork supplies are up 12% compared to a year ago and up 1% from February. Hams were up a whopping 173% from a year ago, but pork bellies are down about 11% from a year ago.
What does this all mean? We have more meat in storage than a year ago, but pork prices are at historic highs, so why worry? The main concern is the greater the supplies of pork in cold storage, the harder it will be to hold those higher prices. Then there is the question of whether higher prices will reduce demand.
There is a significant difference between 2010 pork cutout values and 2011 values. The average pork cutout value for March 2010 was around $74/cwt., carcass, compared to March of 2011, which averaged over $90/cwt. Are we starting to get some pushback on pork demand because of the price? The trend is starting to tell us that may be the case, but we will have to wait and see how this plays out over the year. These are key indicators for us to watch over the coming months.
A Few Words of Caution
I have not seen nor heard of any real expansion in the hog business until recently. Now I am hearing of empty sow units that are looking to start up again. You can’t blame producers with empty assets to try to get some return on their capital investment. However, we must make sure we do not increase supply a great deal. How much of this is happening is a very good question.
There are many red flags going forward, and I want to remind people that not long ago this industry was under severe economic pressure. We also have one less packing plant today than we did back in 2009. There is talk of a new plant being built, but to date there has been no announcement. If hog numbers grow, we will need to increase processing capacity to make sure we can handle the added production, especially during the fourth quarter. I am not concerned about 2011, I am thinking more about 2012.
As we become more dependent on exports, any slight drop in export demand will push prices down. Exports look great going forward, but as we all know, things can change rapidly. Remember April 2009 when the Pandemic H1N1 virus hit and some of our export markets were closed.
Finally, what will be the new “norm” for breakeven cost of production going forward? We are running on a very tight feed supply for the foreseeable future, which means historically high costs of production. I hate to dampen anyone’s enthusiasm, but we are still operating under extreme volatility. Any form of expansion must be met with some trepidation.
Trying Something New
The marketing department at AgStar convinced the swine group to do a weekly video we call “Hog Blog.” It is short (less than three minutes) and presents our thoughts on topics concerning the hog industry. These webcasts can be found at: www.agstar.com/swine/articles/Lists/Posts/Post.aspx?ID=36.
I would appreciate any thoughts and comments you have on this video venture.
Click to view Figure 1..
Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com