Larger Than Expected Hog Numbers Impact Second-Quarter Hog Prices

May 18, 2015

USDA adjusted second-quarter estimated commercial hog slaughter to account for higher than expected weekly hog slaughter in April and early May. While typical seasonal patterns are expected to prevail in May and June, slaughter numbers will likely be higher than initially forecast. As a result of these adjustments, secondquarter commercial pork production is expected to be 5.8 billion pounds, about 100 million pounds greater than initially forecast and 5.8 percent higher than a year ago, when the effects of Porcine Epidemic Diarrhea (PEDv) were beginning to affect production. Second-quarter average prices of live equivalent 51-52 percent lean hogs will reflect larger hog supplies. Prices are expected to average $49-$51 per cwt, 42 percent below a year ago. On the positive side for hog producers, PEDv appears to be largely absent as a production factor so far this year, and moderate feed costs will likely continue to take some of the sting out of lower hog prices. For packers, the start of grilling season, high beef prices, and prospects of a somewhat improved export prospects make for a more positive outlook following a recent spate of low wholesale pork prices.

2015 Hog Industry Expansion Expected To Drive Pork Production Higher Next Year
Expansion of U.S. breeding inventories in 2015, largely in response to extraordinary PEDv-driven producer returns in 2014, are expected to result in larger 2016 pork supplies and lower hog prices. On the other hand, greater pork supplies will likely pressure pork product prices lower, which, in turn, is expected to benefit domestic consumers and to bulk-up U.S. pork export volumes.

Industry expansion should lift 2016 farrowings modestly above levels in 2015. New technologies, genetic improvements, and better herd management are expected to raise 2016 litter rates closer to historical trends. The resulting higher pig crops, along with average dressed weights roughly the same as this year, should lead to about 1 percent more pork production in 2016–or 24.7 billion pounds versus 24.4 billion pounds this year.

Larger hog supplies are expected to result in lower hog prices. Average prices of first-quarter live equivalent 51-52 percent lean hogs are expected to be $45-$49 per cwt, about 3 percent below prices in the first quarter of 2015. For 2016, hog prices are expected to average between $44-$48 per cwt, about 5.4 percent below prices this year.

Larger pork supplies next year and the lower prices that accompany them are expected to add impetus to U.S. pork exports. While the appreciated U.S. dollar will likely continue to function as a tax on exported U.S. goods, lower pork prices may offset some of the drag that the expensive U.S. dollar creates. Exports in 2016 are expected to be 5.125 billion pounds, 5.3 percent greater than the forecast for this year. This export quantity implies that 20.7 percent of U.S. commercial pork production is exported. Larger domestic pork supplies are expected to reduce U.S. import demand next year. In 2016, U.S. pork imports will likely total just over 1 billion pounds, 13.4 percent below imports this year.

After accounting for production, trade and stocks, 2016 per capita pork disappearance—the per person quantity of pork available in domestic markets—is expected to be slightly below per capita pork quantities this year: 49.5 pounds in 2016 compared with 50 pounds this year. Consumers will likely pay a little less for pork at retail in 2016: about $3.70 per pound compared with $3.87 per pound in 2015, a decline of nearly 4 percent. Lower per capita availability, accompanied by lower retail prices, implies that pork demand next year will range from somewhat lower to stable.

March Exports Year-Over-Year Lower for Ninth Consecutive Month U.S. pork exports were 440 million pounds in March, almost 9 percent below a year ago. Lower exports were largely due to generally lower exports to Asia, including 19 percent year-over-year lower shipments to Japan. March was the 10th consecutive month in which Japan was supplanted by Mexico as the largest foreign destination for U.S. pork. Likely explanations include Japan’s accumulation of stocks last year as a precaution against PEDv-reduced international pork supplies. Pork stock levels in Japan (figure below), still relatively large, could be a reason for lower Japanese pork imports. Japan Ministry of Finance data indicate that 2015 total pork imports from all sources, through March, are more than 10 percent lower than a year ago.

It is possible that Japanese pork imports will accelerate after more historic levels of pork stocks are achieved. But the relatively high value of the U.S. dollar will likely continue to hamper U.S. pork exports to Asia, where American pork competes with products denominated in lower valued currencies, particularly pork from Canada and Europe.
It is notable that so far in 2015, U.S. exports to Mexico have continued to climb despite the depreciated value of the Mexican peso against the U.S. dollar

Source: USDA

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