The United States exported 302.2 million pounds carcass weight equivalent of pork in August, 25 million pounds fewer than in July and 0.8% lower than last year (Figure 1). This marks the first back-to-back year-on-year declines since July and August of 2009, but year-to-date pork exports are still up 4.5% from 2009. It now appears very likely that 2010 will be the second-highest export year on record, second only to 2008.
Japan remains the largest customer for U.S. pork, but the gap between Japan and Mexico narrowed significantly in August as exports to Japan have slowed from their record levels of April and June (Figure 2). August shipments to Japan were still 0.7% higher than last year. Year-to-date exports to Japan are 1% higher than last year through August.
Pork exports to Mexico in August were only 5.7% larger than last year, but year-to-date shipments to Mexico are 21.4% larger than last year for the period, primarily due to much better exports in early summer 2010 compared to last year’s H1N1-driven declines.
Canada is a distant third on the rankings of U.S. pork destinations, but August shipments northward were 16% higher than last year and year-to-date shipments are nearly 12% higher.
Russia and South Korea remain troublesome markets for U.S. pork exporters. Russian shipments increased quickly after resuming in April and reached just over 25 million pounds in May. But that growth did not last long and shipments to Russia amounted to only 9.2 million pounds in August, 36% below last year. year-to-date shipments to Russia are 63% lower than in 2009. Exports to Korea have fallen each month since April and are now 15% lower than last year.
Dollar’s Value Will Play a Roll
Several factors will have an impact on U.S. pork exports for the remainder of this year. First and foremost will be the value of the U.S. dollar. Figure 3 shows weekly nearby Dollar Index futures. Note that they have fallen by about 10% since August, making U.S. products less expensive relative to those of our competitors and relative to domestic product in most markets.
Many analysts have expected the dollar to fall significantly since the federal government and Federal Reserve began pumping billions into the economy. More dollars in the money supply normally means each dollar has lower value. But things haven’t translated so clearly this time. Bad times in the United States have been trumped by worse times elsewhere in the world leaving the dollar supported by “flight to safety”. The most recent example is the credit crisis in Greece, which drove the dollar index higher, primarily at the expense of the Euro.
In addition, many of those “liquidity” dollars remain on the balance sheets of banks that needed to shore up their own capital positions. Concerns about the anemic recovery have caused lending to lag and kept the money in the vault. Since the dollars aren’t circulating, the downward pressure on the value of the dollar has been less than expected.
I still believe the dollar will decline and I’ve thought that for well over a year. The trouble is, so have many others. I have found hardly anyone who doesn’t think the dollar’s value will fall and that near-unanimity gives me great pause. When everyone thinks something will happen, it may well not happen. And so far the factors noted above have indeed kept the dollar from challenging its pre-recession lows of 2008.
No one wants the dollar to crash, but a lower dollar will help all U.S. exports – pork included.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.