This week’s news regarding March pork exports was a bright light among a great deal of recent darkness. Part of that darkness, of course, involves the impact of H1N1 influenza A virus on U.S. exports in late April and May. We should not and cannot overlook the fact that shipments to Russia, Mexico, and at least the direct shipments to China, have been hurt. But we must also recognize that U.S. pork exports have been much more buoyant than most had expected given the world economic climate. Let’s celebrate some good news when we can!
March pork exports amounted to 369.5 million pounds, carcass weight, which is 2.2% higher than in March 2008. That level of exports not only exceeds the 2004-2007 trend – a trend line that excludes last year’s excellent performance – but also exceeds the longer-term trend curve that includes 2008 data (see Figure 1).
Recall that if 2009 exports just match the ’04-’07 trend, we will be roughly 15% below 2008 export levels. Through March, ’09 exports had sharply exceeded that level of performance. March exports brought year-to-date shipments to 1.033 billion pounds. That is still 6.6% lower than 2008 shipments, but it represents a marked improvement from the February year-to-date (YTD) figure of -10.8%.
It is here, though, that a dose of realism is useful. The surge most responsible for last year’s huge exports began in earnest in April, when nearly 440 million pounds of U.S. pork left our ports. That was followed by the largest monthly total on record in May and three more monthly export totals that would have been records prior to January 2008. I don’t think it is reasonable at all to think that this year’s shipments would get close to those levels. And that was before H1N1 cooled some important markets in late April and early May.
But staying at or above the ’04-’07 trend appears more and more possible, especially given some weakening of the U.S. dollar (see Figure 2). The strong negative correlation between U.S. pork exports and the U.S. dollar index over the past couple of years is obvious. What is more important right now is that the dollar index has fallen from 85.9 in March to just 82.5 so far in May, making U.S. pork, on average, less expensive to foreign customers. This price advantage will encourage some customers to buy more U.S. pork, perhaps offsetting the decline of shipments to Russia and Mexico.
Figure 3 puts the various U.S. pork customer countries into some perspective. March shipments to Mexico were 64% larger than last year. Canada bought 12% more U.S. pork this March than last, while Japan (-6%), Russia (-25%) and China/Hong Kong (-34%) bought less.
Those percentage changes for March, however, are quite different than the year-to-date changes in shipments to these major markets. Japan and Mexico are the two big growth markets. Japan has purchased roughly 30 million (9.7%) more pounds this year, while Mexico has purchased over 81 million (64%) more pounds. Year-to-date shipments to Russia and China/Hong Kong were 47% and 63% lower, respectively, versus 2008 through March.
What Does the Future Hold?
So what does this mean for hog demand and prices? There is little doubt that the H1N1 scare hurt the export situation. However, hurting exports that were higher than in 2008 is a very different story than hurting exports that could have still been lagging behind 2008 levels. Russia’s ban hurts some. China’s ban is more symbolic, since from 60-80% of monthly imports into China/Hong Kong has moved through Hong Kong this year anyway. Japan has, by all accounts, been rock solid in its support for pork in general and U.S. pork in particular, resisting emotion- and politics-driven calls for import restrictions.
Mexico is the key market in this situation because of its size and the fact that pork demand was almost certainly hit hardest there. Will a return to normal economic activity bring pork purchases back toward their normal level? Or, will fear of pork dominate Mexican consumers’ purchase decisions and leave pork movement slower for the foreseeable future? Probably both of those will occur to some extent and I have no data from which to draw a conclusion about their relative size.
As of Thursday, the pork cutout value had risen back to $61.85/cwt. – $2.58/cwt. higher than it was on April 24 when the H1N1 scare began. That recovery has been driven primarily by higher primal composite values for butts ($5.87/cwt.), ribs ($9.55/cwt.) and bellies ($4.26/cwt). Hams are $2.11/cwt. higher but, with their primal composite value still only $45.06/cwt., they still represent a very cost-effective protein source and one that foreign buyers, especially in Mexico, have taken advantage of in years past.
Let’s hope they do so again. Our spring rally is way behind schedule!
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.