While hog prices have settled back a bit from recent highs, the run-up in prices certainly came as a welcome respite for producers who were long overdue for a break from red ink.
Lower inventories are clearly part of the story behind this price surge, but the wholesale pork cutout also provides some guidance on the factors driving improved pork demand (Figure 1). At the end of April and into early May, the cutout averaged around $90/cwt. – 50 to 60% higher than a year ago. This was the highest value seen since the export-driven record values posted in August 2008.
While all cuts are performing well compared to the doldrums of 2009, the carcass value seems to be getting a particularly strong boost from items typically targeted for export. For example, the ham primal cutout is nearly $0.76/lb. (about 75%) higher than a year ago. Picnic primals have surged nearly 90% to about $0.69/lb. Demand for these items has been extremely strong in Mexico, the No. 1 volume market for U.S. pork.
Through March, pork muscle cut exports to Mexico were up 24% in volume and 45% in value compared to the first quarter of last year. And, remember, 2009 was an all-time record year for U.S. pork in Mexico.
Russia is also a traditionally strong market for U.S. hams, but access was suspended for several months due to widespread plant delistings. The recent resumption of ham exports to Russia has not had much impact on 2010 statistics, yet, but could certainly lend some significant optimism to the market.
Other markets where a surge in muscle cut exports have been achieved in early 2010 include Canada, up 9% in volume and 19% in value over 2009; the ASEAN region has more than doubled its year-ago totals; and, Central and South America are up by nearly 30% in volume and 40% in value.
Cutout value of the loin is up nearly 50% over 2009, to around $1.06/lb. Exports to Japan, the leading value market for U.S. pork and the No. 1 destination for loins, have pulled back a bit in 2010, due to unusually high domestic pork supplies. While Japan is still providing excellent support for loin prices, we hope to see a boost in export activity later this spring as the country works through its current spike in domestic pork inventory.
With the loin and ham primals together accounting for about half the carcass, the increase in loin and ham prices have contributed the most (adding about $0.17/lb.) to the overall cutout value, which is $0.33/lb. higher than last year.
The butt cutout value is up nearly 70%,, exceeding $0.90/lb. Shoulder cuts from the butt primal, like CT butts, are popular items in Japan, South Korea and other Asian markets. Strong values for these cuts indicate a resurgence of demand in these key markets after slow buying early in the year.
A look at pork bellies is also important when analyzing the pork cutout, and belly prices are up more than 50% over 2009. This trend is primarily driven by strong domestic demand for bacon, but the export value of pork bellies is also a factor as fresh pork belly is a popular item in several key Asian markets. So far in 2010, these markets are somewhat mixed with muscle cut exports to Korea and Japan taking a downturn, but absolutely surging in Taiwan, the Philippines and Singapore, while also posting solid growth in Hong Kong.
Thanks to aggressive promotion, fresh pork belly has also gained traction in the foodservice sector in emerging pork markets, such as the Caribbean. Pork muscle cut exports to the Caribbean are running about even with 2009, a year in which we achieved muscle cut export volume growth of nearly 25% and value growth of 17%.
Obviously, the pork cutout has made a strong comeback in all areas, a reflection of strong domestic and global demand. U.S. Meat Export Federation (USMEF) is at work in more than 80 global markets to ensure solid export growth for U.S. pork. In March, the most recent month for which statistics are available, these efforts helped the U.S. pork industry export 22.5% of its total production and 19% of its muscle cut production.
U.S. Meat Export Federation Economist
Click to view graph.