Let’s start with some good, good news: U.S. pork exports are smoking thus far in 2008! USDA’s Foreign Agricultural Service data released Thursday indicate that pork exports set an all-time monthly record of 129.193 MT (million metric tons) or 142.112 million tons in February. That number is 55.3% larger than February 2007. That puts year-to-date pork exports at 246.575 MT or 271.232 tons, 39.8% higher than the same period last year.
Figure 1 shows total pork exports year-to-date as well as exports to major U.S. pork markets. As has been the case since mid-2007, China-Hong Kong is the biggest driver of these higher export levels, growing an astounding 433% year-to-date. Shipments to China-Hong Kong so far in 2008 are only 8.1% smaller than shipments to Japan, our long-standing largest export customer.
Shipments in February were also larger, year-over-year, to Canada (+40%) and Russia (+185%), meaning that year-to-date shipments to those countries are 34% and 195% larger, respectively, than in 2007.
Shipments to Mexico were again lower than one year ago, but February’s -2.8% was the smallest year-over-year reduction since December 2006, which saw 1.3% year-over-year growth. Pork trade with Mexico is still 7.1% smaller thus far in 2008, but that compares to -16.1% at this time last year, and -27.8% for all of 2007. So while we have not caught up to year-earlier levels in our pork trade with Mexico, the situation appears to be improving.
Perhaps even better news is that all of this pork is moving out of the United States at prices very near those of one year ago. Figure 2 shows the value of U.S. pork exports, year-to-date. Total export value is up 36.2%, driven largely by a more than six-fold increase in the value of exports to China-Hong Kong. The value of February shipments was $308.576 million, 46.1% larger than one year ago.
Export Value to Hogs
February pork exports amounted to $32.90/head for each hog slaughtered in the month. I realize that not all pork product exported in February came from hogs slaughtered in February, but, over time, this number is very important to U.S. producers since it represents the value provided by export sales.
Packers can only bid as much for hogs as the value of the products from those hogs will allow. There is never a guarantee that increased product values will in fact be bid into hog prices, especially in the short run. But the level of hog prices thus far in 2008 relative to the huge slaughter runs we have seen strongly suggest strongly that these export values have been bid back into hog prices quite efficiently this year.
Exports of pork variety meats have added to this year’s export success story as well. Variety meat shipments were 57.4% larger this February vs. last February, and stood at 50.2% larger year-to-date through February. The value of those exports was 54.5% higher in February and stood at 49.6% higher for the year through the end of February. Pork variety meat export sales amounted to $3.17/head slaughtered in February, 27% higher than last year’s $2.50/head slaughtered.
Setting Another Record
Will this kind of performance last? It is difficult to imagine that these kinds of year-over-year increases will last through all of 2008, but that doesn’t mean this will not be a banner year for U.S. pork exports. While high feed prices hurt, producers in the European Union (EU) and Canada have it much worse. In addition, the weak U.S. dollar makes U.S pork products very competitive vs. those of Canada, the EU and Brazil, our major competitors in world markets. I have seen no forecasts of a major strengthening for the greenback this year, so that factor should remain in our favor.
In my opinion, only a major trade disruption would prevent the United States from setting its 17th-consecutive record year for pork exports – and from doing so by a wide margin!
That’s a very good thing, too, given where feed costs are and might go. USDA’s April World Agricultural Supply and Demand Estimates, released on Tuesday, took 155 million bushels off projected year-end corn inventories to drop the projected ratio of year-end stocks for total usage to 9.8%. That would be the fourth-lowest inventory since 1970, when my data begin, and the lowest since the 9.4% of 2003/2004.
It’s a Different World
But this is a different world from the bucolic, “we feed corn to critters and people” days of ‘03/’04, and corn demand is much higher, thanks to ethanol usage and record exports (which, by the way, USDA increased by 50 million bushels this month).
In fairness, I must also point out that USDA reduced the projected usage of corn for ethanol by 100 million bushels to 3.1 billion to reflect the unfavorable economics that $5-plus corn presents for ethanol plants as well as livestock feeders.
That different world is reflected by USDA’s new season-average price forecast of $4.10 to $4.50/bu. (up from $3.75 to $4.25 in April). That compares to a season average price of $2.42/bu. in ‘03/’04.
It looks more and more as though the chances of corn over $6/bu. are higher – and perhaps significantly so – than the chances of corn under $5/bu., especially given recent weather patterns.
Excuse me for a bit, I have to go put my lawn mower away and find that snow shovel again.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com