The U.S. Pork Industry Faces Headwinds Early in 2015

Feb 17, 2015

USDA increased its first-quarter pork production forecast to conform to higher than expected hog slaughter numbers in January and early February. The revised firstquarter pork production forecast is 6.13 billion pounds, about 6 percent above production in first-quarter 2014. While the year-over-year increase is magnified somewhat by its comparison to early 2014, a period when the industry was battling Porcine Epidemic Diarrhea (PEDv), large hog numbers in the first quarter is expected to pressure hog prices lower. The average price of live equivalent 51-52 percent lean hogs is expected to be $50-$52 per cwt, almost 26 percent below prices a year ago. Accelerating production of competing proteins—broiler and poultry production in particular, but also smaller declines in 2015 beef production—along with slowing pork exports are likely to drag hog prices down this year. For 2015, hog prices are expected to average $54-$58 per cwt, over 26 percent below prices last year.

The bearish situation for producers created by larger than expected first-quarter production numbers is likely to be exacerbated by lower U.S pork exports in 2015. While shipments of U.S to pork to Asia are currently constrained by problems at U.S West Coast port facilities, a longer term factor likely to slow exports is the highvalue exchange rate of the U.S. dollar. An appreciated value of the U.S. dollar canmake U.S. pork products less competitive (i.e., more expensive) in foreign markets vis-à-vis competing pork exported from such countries as Canada, Europe, and Brazil. USDA has lowered its 2015 forecast for U.S. pork exports to 4.82 billion pounds, a volume almost 1 percent below exports in 2014.

2014 U.S. Pork Exports Year-Over-Year Lower
December pork exports were 394 million pounds, 13 percent below a year earlier. For the fourth quarter, exports totaled 1.142 billion pounds, almost 15 percent below a year earlier. In 2014, U.S. pork exports were almost 4.858 billion pounds, 2.7 percent below shipments in 2013. The largest foreign buyers of U.S. pork in 2014 are summarized below. It is notable that in terms of volume, Mexico surpassed Japan last year.

Exports last year were dragged down by two major factors: PEDv-reduced supplies and the exchange rate value of the U.S. dollar. The dynamics of the exchange rate are captured by the broad dollar index calculated by the St. Louis Federal Reserve Bank and depicted in the figure below. Higher values of the index imply that U.S. products are more expensive in foreign markets. The latest value of the index— January 2015—suggests continued upside risk to index values in 2015.

Source: USDA

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