Yesterday's U.S. pork export data was again disappointing, showing June shipments were 11% lower than a year ago. That makes the fifth consecutive month that U.S. shipments have been below 2006 levels. That run of negative reports has now pulled year-to-date shipments down 5.5% on a product weight basis.
The biggest trouble spot for exports continues to be Mexico. June pork exports south of the border were 44% lower than last year and business with our second-largest pork export market is now 26% lower than last year. The value of shipments to Mexico was down 40% for June and the year-to-date (YTD) total value is down 26%.
I still believe that the two big factors that are driving this reduction in trade with Mexico are tortilla prices and the liquidation of a portion of the Mexican hog herd due to high feed costs. The liquidation can't go on forever and some analysts believe it will have run its course by this fall. That would ring especially true if corn prices continue to moderate. The same moderation, of course, could allow tortilla prices to fall as well.
The other big negatives for U.S. pork exports were Russia (-15% in June and -24% YTD) and Taiwan (-3.2% in June and -37% YTD). Shipments to South Korea are still slightly positive for 2006, but June shipments were nearly 30% smaller after May shipments were down 24%. I'm not too surprised by the difficulties with South Korea -- mainly because last year was such a huge growth year. I am, however, concerned about the magnitude of the recent reductions as beef exports begin to flow.
Even shipments to Japan were down (by 1.5%) in June vs. one year ago, although YTD trade with our largest volume and value customer is still up 8.5% for the year.
China is still the wild card in this export picture. June shipments to Hong Kong-China were 161% larger than in 2006 and YTD shipments exceed 2006 by nearly 53%. As a footnote, I should clarify that I combine the two since there is some slippage of the Hong Kong volume into China.
Altin Kalo, an analyst with Steiner Consulting Group, wrote in Tuesday's edition of the Chicago Mercantile Exchange's Daily Livestock Report that business with China is going to have to be very good to make up for the decline in trade with Mexico. He pointed out that June shipments to Mexico this year were 8,000 metric tons (8,800 tons) smaller than last year. In fact, YTD shipments to Mexico are 38,596 metric tons (42,456 tons) smaller -- a number larger than virtually all of the rumored purchase quantities for China.
The value of U.S. exports remains larger than last year through June -- by 4.8%. June, though, marked the third straight month of lower monthly export value, though the declines have been small. See Figures 1-3 for graphic presentations of this export information.
Through 2001, I marveled at how the United States could continue to set pork export records as the U.S. dollar got stronger and stronger against the currencies of our three main international competitors (see Figure 4). The rise of the greenback made our products more and more expensive but we just kept shipping more.
That trend has now reversed. In spite of an ever-weakening dollar, which makes U.S. product less expensive relative to that of Canada, Europe and Brazil, our shipments are falling. Of course, there are many, many factors that affect foreign trade but, as is true in many markets, price frequently trumps everything else. Unfortunately, that's not the case now.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com