U.S. pork exports have begun 2006 just where they left off in 2005: up, up, up!
Data released by USDA on Thursday shows total U.S. exports for February were 23% higher than last year. That increase comes on the heels of a 20% increase in January and leaves year-to-date exports up 21% vs. the same time period in 2005. See Figure 1 for a year-over-year comparison of the monthly data.
What makes this performance quite remarkable is that exports in February to Japan and Canada, our first- and third-largest pork export buyers, were lower by 10% and 3%, respectively. This marks the third straight month that pork shipments to Japan have been lower than one-year-earlier and year-to-date exports, now trailing 2005 by 7%.
The big story is robust export growth to Mexico -- now up 37% for the year, following an increase of 44% in February. In addition, shipments to Russia more than tripled in February, while those to Hong Kong/China were 41% larger. Exports to Taiwan nearly doubled in February.
The combination of robust exports and imports that are quite close to year-ago levels leaves U.S. net pork exports near a record high (see Figure 2). Last month's net exports of 175.346 million lb. are second only to April 2005, when the figure hit 176.367 million lb.
The February 2006 figure represents 10.7% of total U.S. production during February. Had that product been placed on the U.S. market, it would have driven prices down by 40% or so. Exports are extremely valuable to this industry!
Chicken Exports Up, Too
Probably the most important piece of news in the export report, though, was the surprisingly high level of U.S. chicken exports in February (see Figure 3). Many market observers had expected U.S. exports to be lower due to difficulties in shipping products to Eastern Europe in the wake of avian influenza outbreaks that had sickened a large number of people and killed a few. But these data indicate otherwise.
February exports were 15.4% larger than one year ago. Shipments to Russia were 89% higher, and those to Eastern Europe were 54% larger.
From the viewpoint of a jaded economist, this means only one thing: People will buy cheaper product regardless of the other issues at stake. Perhaps that statement would be more accurate by beginning it with the qualifier "some," but the effect of lower prices has obviously overshadowed some negative sentiments.
So larger chicken exports are good news, right? Not necessarily. While it is good to get the product shipped elsewhere, that means that we now have to find another explanation for extremely low domestic prices. These export data, when combined with domestic production and freezer inventories through March 1, mean that domestic chicken availability/disappearance for February 2006 is only 0.3% higher than it was one year ago. Had exports been lower, the quantity available to U.S. consumers would have been higher and possibly could have explained low chicken prices.
We do not measure consumption of any meat directly. We just use a balance sheet (Beginning inventory + Production + Imports - Exports - Ending inventory) to determine the total amount that disappears during any given time period. Then, when we compute per capita consumption, we make the heroic assumption that all of that is consumed by humans. We simply have no data from which to draw any other conclusions.
Given that limitation, the February chicken data suggest that domestic consumption was about equal to last year, while domestic wholesale chicken prices were anywhere from 10% (for whole birds) to 40% (for some parts) lower than last year. Therefore, those are not supply-induced price declines -- they would suggest very soft chicken demand.
I'm not sure how to handle that because it has hardly ever happened during my professional lifetime. It could be good if consumers turn to pork and beef. It could be bad if it is a symptom of a broader decline in meat demand. It may just mean that U.S. consumers are reacting to day after day of avian influenza gloom and doom in a more emotional manner than I had expected.
It certainly suggests that chicken companies will have to reduce output, perhaps dramatically, in order to help chicken prices. There has been little news of such cuts, but perhaps these data will drive the real world home to decision makers.
Though times are harder than they have been for the past couple of years, remember this weekend that they are not near as hard as they have been, and they are not even comparable to the conditions faced by many in this world. This weekend symbolizes untold blessings and hope for us Christians. Whether you agree with our view or not, take a few minutes to reflect this weekend. I think you'll be better for it, and the real importance of things like chicken exports will likely pale a bit. Happy Easter!
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.