By MOE AGOSTINO and ABHINESH GOPAL
This year started with a blast for U.S. hog prices, which then stalled and fell back to almost the late-2016 lows. The expected expansion in U.S. hog slaughter capacity, in the form of two to four new packing plants coming online this year in the American Midwest, has enticed U.S. hog producers to ratchet up production.
The United States Department of Agriculture’s (USDA’s) March Quarterly Hogs and Pigs report showed across-the-board, year-over-year larger U.S. inventories of market hogs and breeding animals, both of which suggest larger second-half 2017 pork production. A record number of baby piglets that survived during the first quarter of 2017 also fuelled U.S. hog herd expansion.
It’s raining pigs. These large inventories will keep weighing on prices (even through 2018) unless demand, domestically and in the form of exports, is able to consume a lot of that production.
According to the USDA, the second quarter of 2017 should see a 6 per cent increase in U.S. pork production as a result of increased supplies of slaughter-ready hogs and slightly heavier carcass weights. The USDA reported, “In anticipation of additional slaughter capacity (with the new plants), hog producers appear to be extending an expansionary effort that began in 2011. Since then, the U.S. pork industry has added roughly 275,000 animals to its breeding inventory. Over that same period, average litter rates increased from 9.78 to 10.5 pigs in 2016.
“With expanded breeding inventories and continued productivity increases, it is expected that third-quarter 2017 pork production will be a record 6.4 billion pounds, more than 5 per cent higher than a year earlier. Fourth-quarter production is expected to be record-high at 7 billion pounds, even with an assumption of only moderate increases in dressed weights.”
The market is nervous and anxious about the U.S. pork supply in the second quarter of the year. Due to continued strong margins, U.S. packers are not having a hard time finding hogs. For hog producers, finding shackle space could become a problem if your hogs are not booked on a timely basis.
It will be important to see stronger U.S. pork exports to avoid a further sustained slide in hog prices (hog futures dropped by 15 per cent from early February to late April!) USDA data shows that around 7.6 million hogs moved between countries in 2016. This movement includes Canada’s export of 5.7 million hogs and the overwhelming majority of it would have gone to the U.S.
Global pork exports are expected to increase by over 5 per cent in 2017 (which equals 8.75 MMT of pork exports in 2017), from 2016’s record pork trade and twice that in 2003. Total U.S. pork exports in the first quarter of 2017 represented 26 to 28 per cent of total production. This figure is higher than the 24 to 25 per cent of the last quarter of 2016..
Lower feed costs across the world have boosted pork supplies among major producing nations and that pork will be imported into high-demand markets, like China. However, this Chinese demand may not give the most benefit to the U.S. pork industry. For China and Hong Kong combined, 2017 pork imports are expected to be 2.750 MMT. Mainland China’s imports are forecast at 2.3 MMT, which is similar to its imports last year but over twice the country’s import level from two years ago.
It seems European pork producers have gained the most from this revival in Chinese pork demand. However, China is expected to continue to be a strong buyer of U.S. pork in 2017, as their local hog prices are higher than the price of importing from the U.S. The U.S. exported $1.6 billion of pork and pork variety meats in 2016, which equaled $50.26 in exports for each hog slaughtered and 21 per cent of national pork production.